View Page As PDF
Share Button
Tweet Button

Should your business seek tax amnesty?

A majority of states have had tax amnesty programs during the past several years. Amnesty programs generally allow a business to achieve state tax compliance while paying taxes for only a limited number of past years (as opposed to all possible years). As an additional benefit, amnesty programs generally waive all or a portion of the taxpayer’s penalties and/or provide relief from all or a portion of the interest owed on past due taxes. In all, such programs are a great benefit for taxpayers who are not in full compliance with state tax law. However, most amnesty programs are available for a limited period of time. Furthermore, if your business is already under a tax audit, it is often too late to apply for participation in a state’s amnesty program – your business is either stuck with the results of the audit or, if you decide to fight the proposed audit adjustments, the outcome of litigation or negotiation.

While a majority of states have had amnesty programs in the past, it is our understanding that only a few states are planning upcoming programs. As such, tax amnesty programs are few and far between. Fortunately, businesses may benefit from tax amnesty programs that have been announced in Massachusetts and Louisiana.

Upcoming Massachusetts amnesty program

Massachusetts legislators established an upcoming tax amnesty program under its fiscal year 2015 budget bill. According to the Massachusetts Department of Revenue (the Department), the tax amnesty program will take place in September and October 2014. The Department is set to send out tax amnesty notices on September 2, 2014, to taxpayers who qualify. If you or your business qualifies, you or your business will pay only the tax and interest due and the state will waive the unpaid penalties for the period stated. This amnesty program only applies to assessments that were on the books prior to July 1, 2014. However, the amnesty program covers a wide array of state taxes, including: 

  • Boat and recreational sales tax;
  • Gasoline excise tax;

  • Individual income tax;

  • Materialman sales tax; and

  • Various withholding taxes, such as income, performer, pass-through entity, and lottery annuity. 

Additional information on Massachusetts’ tax amnesty program will be issued here by the Department.

Upcoming Louisiana amnesty program

Louisiana lawmakers amended a previous enacted tax amnesty law to sweeten the deal for the state’s planned tax amnesty windows in 2014 and 2015 (the original amnesty law applicable to such years was previously covered). The window of eligibility for 2014 will run from Oct. 15, 2014, through Nov. 14, 2014, and cover tax balances due prior to Jan. 1, 2014. This amnesty program covers most state taxes except for: 

  • Motor fuel taxes;
  • Prepaid 411 sales tax;

  • Oil Field Restoration Taxes (Oil and Gas);

  • Inspection and Supervision Fee; and

  • Penalties for failure to submit information reports that are not based on an underpayment of tax.

Under the 2014 Louisiana Tax Amnesty program, qualifying taxpayers will receive relief from all penalties and half of the interest owed. The 2015 program is generally the same as the 2014 program but will provide qualifying taxpayers with relief from only 33 percent of the penalties and 17 percent of the interest. No specific dates have been set for the 2015 program. The enabling law also prohibits the Department of Revenue from implementing further amnesty programs before Jan. 1, 2025.

Note that qualifying taxpayers under audit, garnishment or bank account levy may participate in the state’s amnesty program. For more information on the amnesty program, see the 2014 Louisiana Tax Amnesty Fact Sheet.

The benefits of pursuing amnesty

Over the past several years, McDonald Hopkins’ Multistate Tax Practice Group has helped numerous clients walk through various tax amnesty programs in various states and obtain favorable results. Even if your business does not have potential state tax liability in a state with an upcoming amnesty program, most states offer voluntary disclosure programs which are a viable alternative to amnesty. These voluntary disclosure programs usually have many of the benefits associated with the amnesty programs.

Assuming your business has potential state tax exposure, the benefits of pursuing amnesty or voluntary disclosure are numerous compared to the risks associated with not complying with the law. Among the general benefits are: 

  • Paying tax for a limited number of open tax years;
  • Minimal business disruptions;

  • Significantly lower professional services fees (as compared to costs associated with handling the audit and appeal associated therewith);

  • State waiver of all or a portion of penalties and/or interest;

  • Possibility of participating in tax payment programs (if offered); and

  • Relief from the uncertainty of noncompliance. 

Please contact us if you would like to discuss the ability of your business to take advantage of the above mentioned amnesty programs or one or more voluntary disclosure programs.

Massachusetts authorizes commission to study tax credit for medical device manufacturers

Massachusetts will create a commission to study the feasibility of implementing a tax credit for medical device manufacturing companies to offset the federal medical device tax. The medical device tax is a 2.3 percent excise tax on medical device sales imposed on the industry since Jan. 1, 2013, as part of the funding for the federal Affordable Care Act. Massachusetts has a large number of medical device manufacturing companies that have been impacted by this federal excise tax.

Pursuant to legislation (H. 4297) signed by Gov. Deval Patrick on July 24, 2014, the commission will examine various factors regarding the feasibility of such tax credit, including the following: 

  1. The potential cost to Massachusetts;
  2. The potential benefit derived by affected businesses; and

  3. The economic impact on Massachusetts of instituting such tax credit. 

The commission will be made up of the following individuals: 

  1. The secretaries of administration and finance and of housing and economic development, or their designees, who shall be the as co-chairs of the commission;
  2. The house and senate chairs of the joint committee on revenue;

  3. The house and senate chairs of the joint committee on economic development and emerging technologies;

  4. One member of the senate to be appointed by the minority leader and one member of the house of representatives to be appointed by the minority leader; and

  5. Industry representatives of the following institutions:

    • The Massachusetts Medical Society;

    • The Massachusetts Medical Device Industry Council, Inc. (MassMEDIC);

    • The Associated Industries of Massachusetts, Inc.; and

    • The Donahue Institute at the University of Massachusetts. 

The commission has until June 30, 2015, to file a report about its findings, including any legislative recommendations.

“By authorizing this commission, Governor Patrick and the State Legislature recognize the serious effect the federal device tax has had on MedTech companies in Massachusetts,” said MassMEDIC President Tom Sommer in a statement on the MassMEDIC website. “Millions of dollars are leaving this state that might have been spent on research and development of technologies that improve the quality of health care delivery. MassMEDIC looks forward to participating in the panel’s work and will make the case for a meaningful tax credit that could help mitigate the impact of the device tax.”

The final text of the bill, as approved by the Legislature and signed by the Governor, is available in attachment F to the governor’s recommendations and amendments to the 2015 fiscal year budget. 

For additional information regarding these subjects or any other multistate tax issues, please contact:

David M. Kall

Susan Millradt McGlone

Jeremy J. Schirra

Multistate Tax Services

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.