A Voluntary Disclosure Agreement (VDA) is a useful tool for businesses that have outstanding tax liabilities that they want to address. In Texas there are two methods of VDA, the traditional and the fast track.
Both methods have similar prerequisites in that the company has not been contacted verbally, or in writing about the taxes in question. This includes notices of an audit, or an examination. If the company qualifies, they will file and pay the back tax liability up to four years back at maximum. In exchange for coming forward voluntarily the state will waive penalty and interest provided the tax was never collected from customers without being registered.
The traditional method starts with writing a letter that includes:
- Entity type (corporation, partnership, etc.)
- Brief description of the company’s business and its activities in Texas
- Date the company began business in its home state and the date it began business activities in Texas
- The tax type(s) for which a VDA is requested
- Any taxes the entity is already set up for in Texas, and the taxpayer number
- A statement indicating that the company has or has not been contacted by the Comptroller about the tax type(s) for which a VDA is requested
- A statement indicating that the company has or has not collected but not remitted any Texas tax
- A request for a payment agreement, if desired, and statement that the business anticipates problems regarding full payment of the disclosed taxes
- An estimate of the amount owed
- Any additional information in support of the request
This letter can be done anonymously, or include the name of the company upfront. If the company name is not provided up-front, once the preliminary agreement has been signed, and a nexus questionnaire has been completed, if the state determines the company is eligible for the VDA, then the company has 60 days to prepare and submit any returns/data with payment to the state.
The fast track process has the same general requirements of having not been contacted by the state previously, but does not do as deep a dive into verifying if other taxes may be due, or date of first nexus. Additionally, if you have any more complex issues such as requesting a refund of tax, or clarification on if something is taxable you cannot use the fast track method. The biggest difference with the fast track method is that you prepare the data and submit payment all at the same time upfront.
Does a VDA makes sense for you?
If you have a more complex issue, need to stretch out the process by taking more time, or need a payment plan, the traditional method is likely the best course of action. The traditional method may also be preferable if you need a strong position that no further liabilities are outstanding. This may be optimal if you are selling your business, and don’t need the process done quickly.
The fast track process makes sense if you need or want the liability addressed quickly and your tax issues are straightforward. This is ideal in a situation where you missed noticing you had nexus by only a short period of time, and want to get it cleaned up, if you are near a period end and do not want to book a contingent liability, or have a sale of the business that is close finalization and you need a liability addressed as quickly as possible.
The voluntary disclosure agreement is a useful tool for dealing with outstanding tax liabilities. While it is right in many situations, it is not the only option. Peisner Johnson is happy to discuss any state tax matters you may have, and find the tools that work for your situation.