For Immediate Release
March 15, 2004

Minnesota – Voluntary Compliance Program – Sound Good?  Maybe Not in Minnesota.

Although the Minnesota Department of Revenue offers a Voluntary Disclosure Agreement (“VDA”) program for sales and use tax, is it right for your company?  Not all VDA’s are created equal.

A VDA allows a Taxpayer to approach a state voluntarily when it determines that it has a tax liability with that state and wants to rectify the situation, but with a few perks for doing so.  Those perks usually include negotiating the agreement anonymously while terms are being agreed upon, determining a limited lookback period, waiving penalty, and abating interest or a portion thereof on the assessment.

However, not all states offer the ideal or the same VDA terms.  So, caution should be taken when deciding whether or not to enter into a VDA with a particular state.  Minnesota provides a perfect example.

While Minnesota offers the standard terms and restrictions of a VDA, they do not abate interest or penalty for the lookback period.  This is one of the major attractions to a Taxpayer to enter into a VDA. These numbers could or not be significant to your company.  That is why it’s important to run the traps before deciding to enter into an agreement with a state.  Minnesota does, however, promise not to assess tax, penalty or interest for any period before the lookback period identified in the Agreement. 

Keeping in mind that the lookback period under a VDA in Minnesota is 3 years (unless you have collected tax and not remitted, whereby there is no statute of limitations), the DOR will look back 6 years for those Taxpayers discovered for noncompliance.  Is that additional 3-year + period significant enough of an incentive to do a VDA, as opposed to registering with the state on a go forward basis, or waiting to be discovered, since penalty and interest are not waived under the VDA?  That decision, of course, is yours alone.

To determine if Minnesota’s VDA is right for you, consider some of the following requirements:

1.      the company must not be registered to collect and pay sales or use tax in Minnesota;

2.      the company must not be under audit for nexus activities or sales and use tax compliance;

3.      the company must not have outstanding liabilities for other Minnesota taxes or be under audit for any Minnesota tax;

4.      the company must agree to register, file returns and applicable spreadsheets and pay the tax due, plus penalty and accrued interest for the entire lookback period;

5.      the company will make its records available for audit upon request to verify the amount of the liability and the accuracy of its statements;

6.      the company will waive all rights to a refund based on a lack of nexus or contact with the state.

If you would like additional information on this topic or have any questions, please contact Scott Cione at (708)352-3985.  E-mail scione@thesaltgroup.com

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