Frequently Asked Questions – Multistate Voluntary Disclosure Program
- What is the Multistate Voluntary Disclosure Program (“MVDP”)?
- What is a voluntary disclosure agreement (“VDA”)?
- What types of taxes can be included in a VDA through the MVDP?
- What states participate in the MVDP?
- Does NNP staff handle an application for voluntary disclosure with a state that is not a participant in the MVDP?
- Is there a minimum amount of tax liability in order to apply for voluntary disclosure through the Multistate Voluntary Disclosure Program?
- What is the lookback period, and how is it determined?
- Who is eligible to enter into a VDA?
- What are the benefits of a VDA entered through the MVDP?
- How does a taxpayer apply for voluntary disclosure through the MVDP?
- How long does the process take?
- What if a state rejects a voluntary disclosure offer?
- Is the information provided in a voluntary disclosure application kept confidential?
- Can a state rescind a VDA?
- Can a state still audit the taxpayer after a VDA is entered into?
- Will the NNP staff handle registering a taxpayer with a state for sales/use tax under the terms of the VDA?
- Can a taxpayer apply for a state’s tax amnesty program through the MVDP?
- Can a taxpayer apply for a payment plan or make installment payment of taxes through the MVDP?
- Can the taxpayer propose a voluntary disclosure agreement through the MVDP in which the taxpayer seeks from the state an automatic extension for filing the income/franchise return for the most current tax year past due?
The MVDP provides a process for a taxpayer with back tax liabilities in multiple states (including the District of Columbia) to negotiate settlements by entering into voluntary disclosure agreements (“VDAs”) with those states, using a uniform procedure coordinated through the National Nexus Program (“NNP”) staff of the Multistate Tax Commission (“Commission”).
A VDA is a written agreement in which the taxpayer discloses and pays back state tax liabilities plus interest and files returns for a limited number of prior tax years, the “lookback period”. In return, the state partially or completely waives penalties and agrees not to assess tax and interest prior to the lookback period (except for collected but unremitted sales, use or withholding tax).
Income/franchise tax, including:
- Corporate and individual income tax
- Employer withholding tax
- Hawaii GET Washington B&O tax
- Other business activity taxes
Currently, 38 states, including the District of Columbia, participate in the MVDP. See list of participating states.
No. The taxpayer should apply directly with a non-participating state.
Yes. The application must contain a “good faith” estimate that the taxpayer has at least $500 in back tax liability to a state for the lookback period in order for the application to be processed by the NNP staff or accepted by a participating state.
The lookback period includes the prior complete tax filing periods for which a taxpayer applying for voluntary disclosure relief must generally file returns and pay the past-due tax liability plus interest in return for the state’s waiver of tax liability for periods prior to the lookback period and penalties. The lookback period also includes the current incomplete tax filing period, the return for which must be timely filed and tax paid when due. The prior and current tax filing periods are determined based on the date that the application is received by National Nexus Program staff. Each state determines its own lookback period. Lookback periods may vary between states. Please note that withholding tax retained from employee salaries and sales and use tax collected from others must be remitted in its entirety, without regard to the lookback period, and may involve non-waivable penalties.
Income/franchise Tax Lookback Period Example
For income/franchise tax, returns are filed on a tax year basis. Many states determine the start date for the lookback period by counting back from the date that the application for voluntary disclosure was received by Nexus Program staff the number of prior tax years equal to the length of the lookback period and for which income/franchise tax returns are delinquent. For those states, the start date for lookback period for a state agreeing to a three-year lookback period could be determined as follows: if the taxpayer using a calendar year for its tax year applied for voluntary disclosure on February 1, 2020 (the date Nexus Program staff received the application), then the start date for the lookback period would be determined by counting back the three prior calendar years for which income/franchise tax returns were delinquent as of February 1, 2020: 2018, 2017, and 2016. It is assumed under the state’s law that the 2019 return would not yet be due as of February 1, 2020. Consequently, the lookback period would commence on January 1, 2016. Returns and tax for tax years 2016, 2017 and 2018 would be filed and paid at the time of execution of the VDA. The 2019 return would be filed and tax paid when due (assuming the return was not due until sometime after execution of the VDA).
Sales/use Tax Lookback Period Example
For sales/use tax, with returns filed on a monthly basis using the calendar months as the tax periods, the lookback period for a state agreeing to a thirty-six month lookback period could be determined as follows: if the taxpayer applied for voluntary disclosure on June 15, 2020, the lookback period would commence at the beginning of the 36 complete calendar months prior to the date the application was received by the NNP staff. Since the application was received by the NNP staff on June 15, 2020, counting 36 complete calendar months prior to that date and starting with May 2020 as the first complete calendar month prior to that date, would mean that the lookback period would commence on June 1, 2017. Many states require the lookback period for a tax with monthly returns to include the entire initial calendar year in the lookback period. In the above example, with that requirement, the lookback period would commence on January 1, 2017, instead of June 1, 2017. Sales/use tax returns or spreadsheets (if permitted by the state) and tax due for the lookback period commencing January 1, 2017, would be filed and paid under the VDA. Returns and tax for future time periods would be filed and paid when due.
As mentioned, each state’s laws, policies, and the applicant’s factual situation will determine the lookback period and how it is calculated, which may differ from the above examples. States use various lookback periods and methods for calculating their lookback periods. A taxpayer with questions concerning the lookback period for a participating state may contact NNP staff at email firstname.lastname@example.org or telephone 202-695-8140. For a list of lookback periods for participating states, see “Lookback Periods for States Participating in National Nexus Program” and “Sales/Use Tax Lookback Periods for Taxpayers with Economic Nexus Only.”
A taxpayer who has not previously filed tax returns with or made tax payments to the state, has not been or is not being audited by the state, and has not otherwise had a prior contact with the state concerning a tax obligation, is eligible to be considered for voluntary disclosure. See Procedures of Multistate Voluntary Disclosure, 5.2.
A taxpayer can submit applications for VDAs with multiple participating states and negotiate them in one efficient process through the MVDP, instead of the taxpayer needing to separately apply and negotiate them directly with each state. The NNP staff is available to discuss nexus issues and provide guidance to the taxpayer (or taxpayer’s representative) through the application and VDA completion process. The VDA limits the taxpayer’s past due tax liability to a limited number of prior tax years (the lookback period), and the taxpayer receives complete or partial waiver of penalties and the state’s agreement not to assess tax and interest prior to those tax years. The VDA eliminates the risk of state audit prior to the lookback period and protects the taxpayer from discovery by the state once the NNP staff has received an application for voluntary disclosure. The taxpayer’s identity will not be disclosed to the state until the VDA is completed. Procedures of Multistate Voluntary Disclosure .
The taxpayer (or taxpayer’s representative) applies online, providing the information requested. See instructions on Multistate Voluntary Disclosure Program Application page.
For a VDA involving a small number of states and no counteroffers, the average processing time from receipt of the application to completion of the VDA is approximately 4 months. Processing time increases when a large number of states are involved, or counteroffers are made. For more detailed information on the time length for processing steps, see Timeline . Deadlines are stated in Procedures of Multistate Voluntary Disclosure .
If you are the Seller, and you have nexus with the state(s) into which you are shipping to your Buyer’s customers, you may be required by that state(s) to remit sales tax on those sales if your Buyer is not registered to collect sales tax.
Unless the application indicates the taxpayer is ineligible under the state’s laws, a state will usually make a counter-offer to the taxpayer, rather than reject the taxpayer’s offer. If the counter-offer is acceptable to the taxpayer, then the VDA can be completed. Depending on the issue, the taxpayer may be able to submit a revised application or amended offer to address the state’s concerns. When a state rejects an offer, the taxpayer may be able to work directly with the state to resolve the issue. The information provided in the application remains confidential and the taxpayer’s identity is protected from disclosure, even when no agreement is reached.
Yes. See Procedures of Multistate Voluntary Disclosure , Paragraph 17.
If the taxpayer made a material misrepresentation of fact in the VDA (including the application) or otherwise fails to perform its obligations under the VDA, then the state can rescind it and assess appropriate tax, penalties and interest. See Procedures of Multistate Voluntary Disclosure , Paragraph 12.
The state can still audit the taxpayer’s records for the lookback period. States generally waive the ability to audit the taxpayer’s records for the time period prior to the lookback period.
No. The taxpayer is responsible for compliance with the registration procedures for that state.
No. The taxpayer must apply directly to the state that is offering the tax amnesty program.
No. A payment plan with a state is not available through the MVDP. The full amount of back tax liability must be paid at the time the taxpayer and the state enter into a VDA through the MVDP. A taxpayer seeking a payment plan or installment payment arrangements must contact the state directly.
Can the taxpayer propose a voluntary disclosure agreement through the MVDP in which the taxpayer seeks from the state an automatic extension for filing the income/franchise return for the most current tax year past due?
Yes. However, the state will make the determination on whether to grant the extension request.
Back to the Overview of Multistate Voluntary Disclosure Program page.