Louisiana Suspends & Extends Amnesty Program

The Louisiana Department of Revenue announced this week that the state's Amnesty program will be suspended through Monday, November 30 and will resume on Tuesday, December 1. The program will then run until December 31, 2015, which accounts for designated and legal holidays.

During the amnesty period, individual and business taxpayers are offered a fresh start to bring their delinquent tax accounts up to date by clearing unpaid tax bills and filing overdue state tax returns.

Amnesty will be granted for eligible taxes to qualified taxpayers who apply during the amnesty period and who agree to settle their accounts with the state by paying 100 percent of delinquent taxes, 83 percent of the remaining interest and 67 percent of the remaining penalties due. Once approved, the Secretary of Revenue will waive the remaining 17 percent interest and 33 percent penalties.

The goal for the 2015 Tax Amnesty Program is $73 million, net of administrative costs and funds retained by LDR as self-generated revenue.

The 2015 Tax Amnesty Program is the third and final effort permitted by the Louisiana Tax Delinquency Amnesty Act of 2013. After the conclusion of the 2015 amnesty period, there will be no new amnesty program offered by the Department of Revenue until at least 2025.

Go here for more details.

why do states enact bad tax policy?

David Brunori, Deputy Publisher at Tax Analysts, recently wrote an article entitled, "More Than a Surrender When It Comes To Taxing Business." You can see his LinkedIn post with comments here. The article discusses how states let politics, and even taxpayers cause them to enact bad tax policy. 

I am a taxpayer advocate fighting the daily struggle for clarity, but this week I find myself feeling sympathetic to the states and their challenge of collecting revenue (I know, strange right). We operate in a grey and political world with many influences and interpretations. Sometimes taxpayers are right. Sometimes the states are right. The challenge is knowing the difference.

I agree that states (and the federal government) do not make wise fiscal decisions which leads to misuse of funds and the request for more. States have "created their own mess" in regards to tax cuts and other incentives for job creation. My point is, after doing this profession for 20+ years, I think we (as tax professionals) can get used to doing what we do and fighting for taxpayers, and we don't pause to see the perception from the other side. The people we deal with in the DORs are people operating within an extremely challenging bureaucracy (run by politics, bad policies) and face challenges of perhaps bad training, and the lack of resources (people and money). Bottom line, we need to work together to find reasonable and practical solutions. We don't need to talk "at" each other. We need to talk "with" each other.

I am for fair, reasonable and constitutional tax policy. Unfortunately, that isn't what we usually get. We get ambiguity open to interpretation, and law that favors in-state taxpayers.

What do you think causes states to enact bad tax policy?

Bloomberg BNA releases its 2015 state tax survey

Taxpayers are always trying to obtain certainty regarding their tax issues. Unfortunately, it is not possible to achieve 100% certainty when the facts are complex and the state's rules are grey. Consequently, the taxpayer and adviser generally review all binding authority (statutes, regulations, cases, etc.) and unbinding authority (informal guidance, etc.) to develop support for a tax position. This is why we have the lovely 'levels of assurance' such as the 'realistic possibility of success' (33%), 'substantial authority' (40%), or 'more likely than not' (> 50%).

Depending on the situation, taxpayers are commonly balancing risk and the amount of dollars to spend to chase down this elusive certainty.  Accordingly, taxpayers are trying to attain the most cost-effective and practical solution that reduces risk to an acceptable level. Thus, other factors (business, legal, financial) may determine how much effort is taken to support a specific tax position, resulting in some taxpayers choosing to default to paying more tax to avoid risk.

Bloomberg BNA released its 2015 Survey of State Tax Departments this week, which according to BBNA, clarifies each state’s position on the gray areas of corporate income tax and sales and use tax administration, with an emphasis on nexus policies. 

BBNA has added new sections addressing income and sales tax nexus for registration with state agencies, as well as sales tax nexus for drop shipment transactions. The survey also has a new focus on each state’s rules for sourcing sales factor receipts for income tax purposes. 

As I have stated in previous posts, surveys like this provide great insight into how a state will treat certain issues and fact patterns. The problem is that many answers provided by the state may not be based on actual statutes and regulations or court rulings. The answers may be based on internal policy or simply be an interpretation of a grey area (right or wrong). Regardless of the basis, the states' answers help a company formulate a conclusion.

You can download the report for FREE, just go here.

draft sales and use tax nexus model act open for public comment

The hearing is to be held on September 15, 2015. Written comments are due no later than September 11, 2015. Persons making oral presentations are requested to file written comments as well. 

The following is an excerpt of the Summary of the Important Provisions of the Model as published by the Multistate Tax Commission (MTC) Uniformity Committee:

While the model is called the “nexus” model, states generally do not define nexus as part of their sales and use tax statutes. Rather, almost all states impose tax payment or collection obligations on defined persons who engage in defined activities in the state (e.g., “retailers” or “vendors”, and “doing business” or “engaging in business”). Many statutes do this within a “general definitions” section for the particular act or article, while others do so in the imposition statute itself.

Most states explicitly or implicitly extend their statutory use tax collection obligations to the limits of what the Constitution allows. The draft model follows this general approach of defining the operative terms for imposing a collection duty. The draft consists of two main provisions – a definition and a presumption – in Sections (a) and (b) respectively.

Section (a) defines the person on whom a tax payment or collection burden is imposed (here, “retailer engaged in business”) as a retailer, whether or not authorized to do business in this state, that has a sufficient connection with this state under the United States Constitution to be subject to sales and use tax collection duties . . . .

Section (a) also contains a list of activities that would bring a person within the definition of “retailer engaged in business.”

Section (b) is the “click-through” nexus provision modeled on what other states have enacted, generally—which takes the form of a rebuttable presumption. This provision also contains a minimum threshold.

Other provisions of the bill define certain terms and also provide for the possibility that federal legislation might someday grant states authority over other out-of-state persons (i.e. remote sellers).

The workgroup discussed but decided not to include any explicit de minimis rule for the activities listed in Section (a) or any “trailing” nexus provision.

For more info, please see the MTC's Notice of Public Hearing and site.

retroactively changing state tax legislation creates uncertainty

COST or (Council on State Taxation) recently urged the U.S. Supreme Court to hear a court case involving the state's ability to retroactively change legislation enacted eight years earlier (Hambleton v. State of Washington). The case involves Washington's estate tax, but has implications for other tax types (income tax and sales tax).

what are the limits?

COST's amicus brief discusses the history of the courts allowing retroactive changes to legislation and the limits imposed. According to COST, some courts have found as little as 16 months excessive and other courts have found more than ten years permissible. COST mentions that the Court has held that retroactive changes are allowed to carry out the intent of legislation enacted slightly more than one year before. The broad range and lack of uniformity among the states not only creates compliance concerns for taxpayers, but also carries the potential for violating the Due Process Clause of the U.S. Constitution.

uncertainty creates burden

Taxpayers generally take positions based on their own risk tolerance. Taxpayers who have a high risk tolerance may be willing to take positions based on their interpretation that a grey area of tax law is not constitutional or vague. These types of taxpayers run the risk of a state not only assessing additional tax, interest and penalties, but also are exposed to a state's ability to retroactively change its law in its favor.

Taxpayers with a lower risk tolerance may choose to take a conservative position and follow the grey are of tax law despite how obvious it may be that the law is unconstitutional or vague. These types of taxpayers may choose to file amended returns claiming a refund of the tax paid. In this case, the taxpayer is protected from being assessed additional taxes, interest and penalties. However, the taxpayer is still exposed to a state's ability to retroactively change its law in its favor resulting in the disallowance of the taxpayer's refund claim. 

In both situations, taxpayers may incur compliance costs, consulting fees, attorney fees, court costs, etc. before the issue is resolved. Additionally, while the issue is being litigated or considered, the uncertainty creates additional exposure for current tax years. 

I agree with COST, and urge the U.S. Supreme Court to consider this case not only for the reasons asserted by COST in their amicus brief, but also because states have an obligation to create a stable and reasonable compliance environment that doesn't keep taxpayers guessing.

2015 state tax amnesty programs - should your company apply?

Is amnesty the way forward? Does your company have past liabilities that need paid without paying penalties or interest? Should your company participate in a state's amnesty program or utilize the state's Voluntary Disclosure Program?

These questions plague companies when faced with identified compliance exposure and failures for multiple tax years. Some states offer one-time, short time-frame amnesty periods allowing companies to come forward, file prior year tax returns, and pay tax with the promise of future compliance. Depending on the specifics of the state's amnesty program, penalties and/or interest may be abated.

Key to remember: if your company has exposure and does not come forward, then the state may assess more significant penalties and interest when it finds your company later.

The Council on State Taxation (COST) has put together a great matrix of 2015 state tax amnesty programs. Check it out here.

Also, if you would like to read more about amnesty, check out my previous posts here.

Specifically, you may like: Amnesty and Voluntary Disclosure Agreements: What, When, Why?