Multi-state Voluntary Disclosure
Please view the links below for more information regarding the Multi-state Voluntary Disclosure Program:
Voluntary Disclosure allows a tax non-filer with potential liability in
multiple U.S. states (including the District of Columbia) to negotiate a
settlement agreement regarding back liability on favorable terms through a
single point of contact and a single, uniform procedure.
States offer this
service through the Multistate Tax Commission because it is sometimes unclear
how nexus (state jurisdiction to tax) applies to a particular taxpayer or
situation, which may cause a taxpayer to not file in all the states in which it
should. The service eases the burden of
coming into compliance in multiple states. Multi-state voluntary disclosure does not determine whether nexus exists
with respect to a taxpayer. Instead, the
parties set that issue aside and clear up the uncertainty about past tax periods
through compromise. The multi-state
voluntary disclosure service is administered by the National Nexus Program, a
division of the Multistate Tax Commission.
A non-filer may
apply directly to states for voluntary disclosure. However, when more than one state is
involved, the non-filer will find multi-state voluntary disclosure to be faster
and more efficient, and therefore less costly. There is no charge to a taxpayer or its representative for
participation. The Multistate Tax
Commission is funded by its member states.
Any type of tax
administered by a state’s department of taxation or revenue is eligible. The most common types are sales/use tax and
the various business activity taxes, such as income tax. Generally, contact with a state with respect
to a type of tax disqualifies that taxpayer from participation in voluntary
disclosure with respect to that type of tax in that state. “Contact” includes filing a return, paying a
tax, and receiving an inquiry from the state regarding the type of tax at issue. See Procedures of Multi-state Voluntary Disclosure for details and exceptions.
The core terms of voluntary disclosure are:
||Taxpayer files and pays back tax and
interest with respect to the Lookback Period; and
||State waives all penalty and all tax prior to
the Lookback Period.
will expect the taxpayer to continue filing unless there is a material change
in its nexus status. The length of the
Lookback Period is determined by individual state policy. Three to four years is common. The material
terms of the voluntary disclosure settlement, including the Lookback Period and
waiver of penalty, will be identical whether the taxpayer applies to states directly
or to them through the multi-state program. The Commission cannot alter a state’s Lookback
Period, but it welcomes requests to tailor a voluntary disclosure contract to a
particular applicant’s needs.
The Multistate Tax Commission takes protection of applicant confidentiality very seriously. An applicant’s identity will be disclosed
only to a state with which the applicant has signed a voluntary disclosure
agreement. The Multistate Tax Commission
does not disclose the existence or terms of a voluntary disclosure agreement to
any other state, including those that have a pending or signed contract with
that taxpayer. And an applicant should not
disclose any information in its application that would allow states or the Multistate
Tax Commission to learn its identity. In
the event of accidental disclosure, Procedures of Multi-state Voluntary Disclosure prohibits the Commission and member
states of the National Nexus Program to use that information (See section
7). A state will know the applicant’s
identity only after a legally binding voluntary disclosure contract has come into
force. Until a contract is signed with a
state, an applicant is known to that state only by its voluntary disclosure
Case number, e.g., MTC 2012-502. In
addition to the confidentiality rules of the Commission’s Procedures of
Multi-state Voluntary Disclosure (binding on the Commission and member states),
the contract will require that the state and Commission maintain in perpetuity the taxpayer’s
confidentiality as a voluntary disclosure participant.
Most communication is by telephone or e-mail. All
electronic communications originated by states or the Commission that contain
confidential taxpayer information are encrypted for security.
described below are uniform procedures applicable to almost all states. A
Commission staff member can explain the small number of individual state variations
from these procedures.
A non-filer prepares an application online and
submits it via a secure internet connection on the multi-state voluntary
disclosure section of the Commission’s website. A Word version and PDF version are available for e-mail or physical submission, if desired. The applicant should not disclose information in the application that would identify it.
To provide for communication about the
disclosure, the application requests contact information of the person managing
the disclosure for the applicant. If
this person is a representative, such as an accountant or lawyer, the
Commission does not routinely provide this to a state before the disclosure
contract is signed, but it may do so unless instructed otherwise. However, if the person managing the
disclosure is the applicant, or his/her identity would disclose the identity of
the applicant (such as in the case of an employee), the Commission does not
disclose that contact information to anyone except 1) the affected state after
a valid voluntary disclosure is in place, 2) any person with the applicant’s
permission, and 3) any person upon order
by a court with jurisdiction. Confidentiality rules are addressed in Procedures of Multi-state Voluntary Disclosure.
The application also requests information that
will be necessary to prepare a voluntary disclosure contract, such as:
a. The applicant’s tax year end.
about the general activities of the applicant within the states (it allows for
answers that vary by state). Great
detail is usually not required and many applicants are able to answer this
question in a few sentences.
c. A rough estimate of the amount of tax that will be due for the previous three
years. Applicants should provide as much
accuracy as is available, but this amount need only be approximate. An acceptable answer in the absence of
complete data would be, for example, that tax due is “probably between $500 and $5,000”.
Commission staff reviews the application to
ensure that it has all the information a state will need to make a decision,
and that it does not contain information that is unnecessary or that may lead
to identification of the applicant. Staff responds to the applicant within seven calendar days, usually less,
generally providing a draft voluntary disclosure contract at that time for
taxpayer review. This contract, when
accepted by state and taxpayer, will be the voluntary disclosure agreement that
settles the applicant’s back liability.
The Commission welcomes requests to tailor the
contract to meet individual taxpayer needs. The Commission’s policy is to make its experience available to
applicants regarding the types of special requests that a particular state is
likely to accept or reject, while also honoring the applicant’s right to
propose terms of its own choosing. The
Commission will forward to states any non-frivolous offer that an applicant
When the applicant approves the draft contract,
the Commission sends it to the states as the applicant’s offer of voluntary
disclosure together with the applicant’s application (redacted of identifying
information). The application and the
contract contain the applicant’s statement of its factual circumstances
supporting its eligibility for voluntary disclosure, e.g., not under audit.
The applicant chooses the states (including
District of Columbia) to receive an offer. The Commission does not require the taxpayer to apply to all states in
which it arguably has nexus. A taxpayer may
withdraw an application or submit a new one at any time.
States usually respond within thirty days by
signing the voluntary disclosure contract and returning it to the Commission. That then becomes the legal offer of the
state to the applicant, who is still identified only by Case number. The Commission forwards it to the applicant,
who may accept or reject it.
If a state will not accept special terms
requested by an applicant, it will generally counter-offer by returning the
contract unsigned with a request that it be submitted again with
amendment. Commission staff can arrange
teleconferences with state personnel and otherwise facilitate communication to
help the parties come to agreement.
If the applicant signs the contract and returns
it to the Commission, it becomes a fully executed, legally binding contract
between state and taxpayer. Only at this
point does the state become aware of the taxpayer’s identity. The taxpayer returns the signed contract to
the Commission together with tax returns and tax payment that are due with
respect to the Lookback Period. The Commission forwards these to the state. The Commission retains the original contract and provides a copy to the state and taxpayer each. The state bills the taxpayer for interest, usually within about thirty days.
This concludes the multi-state voluntary
disclosure process. Commission staff
remains available to assist with any problem that may arise later with respect
to fulfillment of the disclosure agreement.
The Multistate Tax
Commission’s National Nexus Program, which administers the multi-state
voluntary disclosure service, is funded by thirty-six Member States. As a service to taxpayers, however, the
Commission presently provides multi-state voluntary disclosure service to the
District of Columbia and all but five states, without regard to membership
Alaska, Arizona, Arkansas, Colorado, Connecticut, District of
Columbia, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, North
Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee,
Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
The seven non-participating states are:
Mexico does not have a voluntary disclosure program of any kind, either
through the Commission or otherwise. Commission staff will on request provide a state contact person who can
discuss managed audit and other possible courses of action.
Illinois offers voluntary
disclosure, but does not work through the Commission. Commission staff can provide a state contact person in Illinois to assist with voluntary
disclosure in that state.
Nevada, Ohio and New York do not
participate in any way.
This is an overview
of multi-state voluntary disclosure. A
few states require a different procedure. A Commission staff member can explain this more fully. You may also want to review Procedures of Multi-state Disclosure, which are the rules governing the Commission and
participating member states with respect to multi-state voluntary disclosure.
The staff of the
Multistate Tax Commission’s National Nexus Program looks forward to assisting
you with multi-state voluntary disclosure. For further information, please contact:
Director, National Nexus Program
Multistate Tax Commission
444 North Capitol Street, NW, Suite 425
Washington, DC 20001-1538