Sales Tax Amnesty - A Carrot or a Stick?

Throughout 2010, I’ve noticed an abundance of sales tax amnesty programs being offered to businesses.  Before a business considers an amnesty program, there is work to be done.

In a year when states are struggling with budget shortfalls, at least ten states plus the District of Columbia have offered tax amnesty.   Forgiving taxes when states need the revenue seems counter-intuitive, but from the state’s perspective, it makes sense.  The ROI associated with the amnesty programs is better than the added expense of hiring additional auditors.  Also, states would rather have a benevolent appearance in the form of amnesty instead of a more aggressive posture in the form of increased sales tax audit activity.

But, with amnesty, all is not necessarily forgiven.  Businesses should be aware of the rules of the amnesty program.  Some states waive penalties and interest, others will waive penalties but not interest, and yet others will waive certain percentages of each.  Some programs have additional restrictions including a limited look-back period.  If there is fraud or theft, the amnesty terms might not apply at all.

Before a business identifies itself to a state as a candidate for a tax amnesty program, it should have its facts in order.  The protocol and structure of each state will vary slightly.  So if you’re uncomfortable with the state’s procedure or whether the amnesty applies to you, seek guidance from a sales tax expert.