Many states are looking for ways to obtain additional revenue during the recession without having to raise taxes. Tax amnesty programs offer a way for states to collect a large amount of past-due tax liabilities from companies in a short period of time. Participating companies owe back taxes, haven’t filed in that state, or know they owe some kind of money but have just been waiting for whatever reason.
While Ohio is not currently undergoing a program, you may be subject to these payments if you owe back taxes for business locations in states currently undergoing amnesty programs (Pennsylvania, New York and possibly Illinois).
“This offers taxpayers a limited opportunity to pay back taxes,” says Matthew Stamp, the director of state and local tax services with GBQ Partners LLC. “The state usually offers some break on interests or penalties or on the period of time you have to file. So you can alleviate that tax liability without any further issues from the state.”
Smart Business spoke with Stamp about the benefits and risks of state tax amnesty programs and how these differ from other tax payback programs.
What are the benefits and risks of state tax amnesty programs?
Penalties and interest charges can be significant and carry heavy burdens. These programs allow taxpayers to reduce the actual money paid, as if they’ve been filing all along. You’re allowed to close certain periods and move forward and file in the state without any further repercussions after you’ve paid under the amnesty program.
You need to be careful though, because you’re putting yourself out there to the state with this program. The state could impose taxes, interests and penalties if you don’t comply with all program requirements, have missed some bit of information or fall out of the program for prior periods. This could end up costing you a significant amount of money.
What key things do companies and taxpayers need to understand about state tax amnesty programs?
You need to weigh your options and analyze the dollar amounts at stake. You also need to understand if the state already has a voluntary disclosure program running, because there are differences between these and amnesty programs. You need to be able to weigh the risks and benefits of these programs, and if the voluntary disclosure program will be suspended while the amnesty program is taking place. You also need to understand what will happen if you don’t come forward under the program, how aggressive any audits will be, and if there will be harsher penalty and interest charges.
