Negotiated Settlements: Remediating Tax Issues for Multistate Businesses that Can't Do VDAs
Companies that sell products or services in multiple states routinely face tax obligations that involve complex taxability and complex nexus rules. Growing multi-state businesses often develop sales tax exposures or income tax exposures before the business has an internal sales tax team. When entities can't qualify for Voluntary Disclosure Agreements, but want to settle long standing exposures we generally have that most Departments of Revenue will work with a taxpayer to agree to a waiver of penalties and an agreed lookback for filing.
Benefits of a Negotiated Settlement
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States will limit the lookback
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States will generally waive penalties.
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Eliminate the Need for Financial Reserves
Risks of Not Doing the Negotiated Settlement
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Most states will assess tax for periods where the taxpayer did not file, often including 7 to 10 years, and some states may go back even further.
Penalties can range from 25% to 100% for failure to file tax returns and failure to pay the tax.
While interest varies by state, when a state goes back 7 to 10 years the interest can become material.
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Contact DOR and Request a Negotiated Settlement
We find the proper contact in either the VDA unit, Tax Policy, or Audit Unit to handle the approval of a negotiated settlement. We discuss terms of settlement including the period of lookback and the waiver of penalties.
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Submit the Applicable Returns.
We submit the sales tax, income tax, or nonresident withholding tax returns either online or to the state representative.
The Negotiated Settlement Process
Generally, states prohibit a company that has previously been contacted by the state from entering into a voluntary disclosure agreement. Additionally, states will generally prohibit a company that is already filing that tax in the state from entering into a voluntary disclosure agreement. Certain states will prohibit a company that files one tax from participating in a voluntary disclosure agreement for another tax. While the VDA processes are very formal, the negotiated settlement process tends to require more discussions with the state representatives.
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Review and Sign Negotiated Settlement
We work with the state to confirm the terms of the agreement, the lookback, the applicable taxes, and any data issues.
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Submit Payment for the Taxes
The Company will pay the applicable taxes based upon the amounts reflected in the applicable returns.
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Prepare and File Any Registrations
We prepare the sales tax registrations or applicable income tax registration.
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The State Calculates the Interest
The calculation of the interest is very complex and, as a result, the state calculates the interest and sends a notice.
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Prepare the Applicable Returns.
We can prepare the sales and use tax returns or worksheets in lieu of returns as well as the state income tax or nonresident withholding tax returns.
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Submit Payment for Interest
The Company pays the interest and the Negotiated Settlement closes.
What Do Negotiated Settlements Cost?
- We charge by the hour for negotiated settlements as the process is less structured and the time needed varies by the state. We will also charge for the registration process if needed. We will charge separately for the preparation of sales and use tax returns or worksheets in lieu of returns. The timeline for Negotiated Settlements tends to be longer since normally the settlement has to be approved by numerous officials.