States will offer sales tax amnesty programs from time to time. For non-compliant businesses, these programs provide a path to getting back into compliance and often allow for reduced or eliminated interest, fines, and penalties.
Sales tax rules are ever-evolving and complicated. As a result, many reputable companies fail to fulfill all of their obligations in every jurisdiction where they are required to pay. This can have serious financial consequences.
Sales tax amnesty programs provide a chance to come into compliance without paying the full amount normally required. If your company may owe back taxes, it's crucial that you learn how these amnesty programs work and what your options are if no amnesty program is available.
What Are Sales Tax Amnesty Programs?
Sales tax amnesty programs are offered at the discretion of local taxing authorities. Typically, these programs run for a limited time. Businesses are allowed to come forward during that amnesty period, provide an accounting of unpaid taxes, and pay the amount they owe.
Amnesty programs encourage voluntary self-reporting of back taxes by offering benefits such as:
- Waived or reduced penalties
- Waived or reduced interest
- Relief from audits during the covered period
Unfortunately, these programs aren't common. When they are offered, though, they provide a strong incentive for any company that's not in compliance to address their issues to avoid higher costs and the intrusiveness of an audit at a later point.
State Tax Amnesty Programs vs. Voluntary Disclosure Programs
Voluntary disclosure agreements (VDA) are an alternative to sales tax amnesty programs that can also help a business come into compliance.
Under VDA programs, sellers who discover they owe past-due sales taxes can reach out to the Department of Revenue and disclose their failure to comply with the law. If they owe in multiple states, they can also submit a Multistate Voluntary Disclosure Application.
Companies can make this disclosure anonymously at first, often working through an accountant or tax attorney. The Department of Revenue will negotiate with your company or agent to come to an agreement in which some of the penalties and interest you'd normally owe can be waived. You can often set up a payment plan and negotiate both reduced penalties and fees, as well as limits on the look-back period.
Like amnesty programs, states offer VDA programs to incentivize companies to come forward, as many businesses simply don't realize when they must begin paying sales tax in a given state. That's why voluntary disclosures are generally available only if you have not yet been audited or contacted by state regulators.
The big difference between amnesty programs and VDA programs is that amnesty programs are broadly available for any business to come forward and resolve past tax issues based on terms the state establishes for that particular amnesty program. Voluntary disclosure programs, on the other hand, require individual companies to initiate contact and negotiate their own terms for coming into compliance.
Benefits of Participating in a Sales Tax Amnesty Program
There are significant benefits associated with participation in a sales tax amnesty program. Some of the biggest advantages include the following:
- Reducing financial liability: By avoiding penalties and fees, you can lower the costs of becoming compliant. Because tax amnesty programs often outline the terms upfront, you'll also know how much you can expect to pay to resolve your tax issues.
- Peace-of-mind. If you're out of compliance with sales tax laws, this could result in an audit and a requirement to pay back taxes. You have no way of knowing when regulators will come after you. If you participate in an amnesty program, you can put past compliance failures behind you and have the peace of mind of knowing no Department of Revenue will come knocking.
- Opportunity to start fresh: Once you've come into compliance through an amnesty program, you have a clean slate and can ensure you fulfill tax obligations going forward so you don't have to fear future audits.
Amnesty programs provide a unique opportunity, and if you are lucky enough for one to be offered after you've discovered unfulfilled tax liabilities, you should take advantage of it.
Eligibility Requirements
When states offer amnesty programs, they establish eligibility requirements to participate.
These can differ by jurisdiction, but some common requirements include the following:
- Conducting business activities within the state. Amnesty programs are generally offered within specific states. It makes sense to participate in them only if you conducted business in the state and triggered sales tax obligations that you failed to fulfill.
- Owing sales or use taxes during a designated time. Amnesty programs explain the type of back taxes they cover and the specific time the amnesty is good for. If you owe back taxes during that period, you are eligible to participate.
- No prior contact with auditors. If the Department of Revenue is already in the process of collecting back taxes from you, you usually won't be eligible to participate in an amnesty program to resolve that unpaid tax debt.
- An understanding of taxes due. Your company will usually need to be willing to make a full accounting of past liabilities. If you're unable or unwilling to admit what you owe, amnesty may be off the table.
While many businesses can qualify for, and benefit from, sales tax amnesty programs, these programs are especially helpful for eCommerce and SaaS businesses who simply didn't realize they owed taxes due to evolving laws and legal complexities in these areas.
A fundamental change occurred in 2018 when the Supreme Court ruled a physical presence in a state was no longer required for a business to owe sales tax. After the 2018 case, companies are now required to collect and remit sales tax if they have enough connections with the state charging it even if they aren't local to the area.
Your business could have those connections because you have physical locations in a state, such as a retail or storage facility or employees who live there. Or you could have those connections because you do a certain amount of business there. When you meet the requirements to owe taxes, you establish nexus and trigger tax obligations.
Unfortunately, companies unaware of these rules, or businesses that don't carefully track total transactions or sales volume across different jurisdictions, may be unaware of the requirement to register, collect sales tax, and pay taxes periodically in states where they have nexus.
eCommerce and SaaS companies that discover this after the fact can benefit from amnesty programs that allow them to pay back taxes they owe from the time they establish nexus until the time they learn about their obligations.
Steps to Participate in a Sales Tax Amnesty Program
If you want to participate in a sales tax amnesty program, these are the steps you will most likely have to take.
- Research Program Availability: Check with the Department of Revenue in states where you owe back taxes to see if they have a current amnesty program or are likely to have one in the future based on the scheduling of past programs.
- Review Terms and Deadlines: If an amnesty program is available, research the eligibility requirements, coverage periods, and submission deadlines. Confirm your business is eligible to participate and that the amnesty program covers the period of time when you have unpaid tax liabilities.
- Calculate Outstanding Liabilities: Review past transactions to determine the total amount of taxes you failed to collect and pay so you can understand going into the program how much you owe.
- Submit an Application: The Department of Revenue will explain the forms you must fill out and the documentation that you must provide to participate in the amnesty program. Complete the forms in their entirety, either on your own or with help from an accountant or legal professional.
- Pay Outstanding Taxes: You will have to pay the back taxes you owe, even though penalties and fees are usually reduced or waived. Payment plans may be available as part of the amnesty program, so be prepared to pay on the required schedule.
Example of a Sales Tax Amnesty Program
Massachusetts recently operated an amnesty program from November 1 to December 30, 2024. It offered amnesty for taxpayers with a variety of unpaid tax debt including, but not limited to, boats and recreational vehicle taxes; business use taxes; cigar and cigarette taxes; sales tax; sales tax services; and marijuana retail taxes.
The Massachusetts program required you to:
- Be an eligible taxpayer
- Submit a request for amnesty on MassTaxConnect
- Pay all of the taxes and interest on unpaid taxes included in the amnesty request
- File all the required returns with the Department of Revenue by December 30, 2024.
South Carolina has also authorized an amnesty program that will take place at a future date to allow taxpayers to request amnesty; voluntarily file delinquent tax returns or amended returns; and voluntarily pay previously assessed tax liabilities within the amnesty program. Installment agreements will be allowed.
These programs are representative of how most amnesty programs work, but remember there are variations from state to state.
Current and Available Programs By State
Amnesty programs don't typically occur on set schedules. Instead, they're offered by Departments of Revenue when the DoR determines it wants to incentivize the payment of back taxes.
The table below shows current and available programs that your business may be able to take advantage of.
Final Thoughts
When your company owes back taxes, you face the risk of an audit and a large tax bill at any time. Amnesty programs allow you to resolve your past issues so you no longer have this liability hanging over your head. You should take advantage of these programs whenever they are offered in a state where you owe.
Once you have used an amnesty program, it's critical to remain compliant with your tax obligations in the future. The good news is, that's easy to do with Numeral. Numeral tracks your connections to determine when nexus is established, registers you with the states where you must collect taxes, manages tax collection, and files forms and makes payments on your behalf.
Numeral is designed by CPAs to make sales tax compliance effortless. In fact you can spend as little as five minutes monthly on managing your sales tax obligations. With no long-term commitment and 24/7 customer service available, there's no reason not to give Numeral a try.
Contact Numeral today to find out how you can ensure you'll never need sales tax amnesty in the future since you'll be able to fulfill your obligations with ease.
