Pros & Cons of Voluntary Disclosure Agreements

For a company, sales tax management doing business in several states needs diligence and dedication of learning the inconsistent and ambiguous local and state sales tax rules. So, your decision of entering the VDA must come after a complete business analysis. To decide how you must approach VDAs, there are professional companies like TaxConnex who can help to examine the crucial areas.

Any ignored nexus-creating actions that can trigger the sales tax obligations, such as inventory in the warehouse and traveling salesperson, will spell trouble for the company in case the state knows about your obligations before doing.

Because of the present economy, the cash-strapped states can just get highly aggressive for seeking out sellers that engage in the business in a state. Suppose you know your company must be getting sales tax in the state many years before. 

What’s Voluntary Disclosure Agreement or VDA?

Entering in the voluntary disclosure agreements or VDA with states is all about companies knowing about their state tax exposure (income tax, sales tax, and both) and getting ahead voluntarily for paying outstanding liabilities before your state identifies as a part of the audit and outreach effort.  

Benefits of VDA 

• An ability to control review
• Check out the property types
• Manage property
• Review methods to assure that they’re enough to comply with unclaimed property needs 
• Look back period will be shorter or limited than the audit
• Provides for the abatement or reduction of penalties and interest
• Establishes the rapport with your state administrator
• Offers indemnification against the claims that are filed when the property gets accepted by states
• Allows additional time for submitting the reports

Drawbacks of VDA 

• Needs to complete any due diligence or reporting in a given time frame given by VDA
• Maintain the unclaimed property compliance to move ahead after completing the VDA

How Does VDAs Protect Your Company? 

When looking for non-compliance notices from jurisdiction it means to have complete review, taxes, interest, and penalties. Taking the proactive approach for resolving any kind of tax delinquencies through the VDA will help you:

• Bring down the business costs & reduce contingent liabilities from the financial statements
• Decrease risk of the future audit assessments
• Eliminate interest and penalties
• Limit the look-back time to the past 3 to 4 years
• Save time than audit and delinquent tax exam 
• Register business for any future taxes

Is VDA for you?

Suppose your company qualifies, making use of the VDA to come forward & pay what you have is the advisable choice. Selecting to play an audit lottery when you discover any non-compliance in the company will be risky business. The penalties can be steeper if the auditor finds you. Also, the state tax agency will assess the tax where nexus date without any protection of the limited look-back time of the VDA. The public companies that are subject to the ASC450 provisions cannot avoid taking the right actions.

You should weigh the given benefits and drawbacks specific to the company’s situation. Forgoing the VDA & registering through standard registration procedure for the sales tax will be the right fit for the company in an end. 

The voluntary disclosure agreements or VDA are not the only options for getting right with the state in the way, which limits your exposure and liability. On several occasions, states may offer a state tax program that allows taxpayers to pay taxes without penalties and interest in case they register in a program timeframe.

Thus, participation in the voluntary disclosure agreement will be something that you must consider if you have not registered to collect in the state where you must have. However, is VDA the right option for you? From conversations, we have come to know that there are several questions regarding VDAs. So, to help answer a few questions & help you determine if VDA is the right choice for you, continue reading common misconceptions about the VDAs debunked.

Final Words

If an applicant isn’t compliant with one or more tax types, they might apply for the VDAs for various tax types in an application. Suppose there are different areas of noncompliance (outstanding liability), these must be listed in an application and get resolved in the conjunction with VDA.