Thompson Coburn partner Janette Lohman was recently interviewed by Bloomberg Law for Bloomberg Tax’s “Talking Tax” podcast. The topic was Janette’s suggestion for a fresh approach to help more non-registered businesses comply with states' tax laws. She suggests that if states make their existing voluntary disclosure agreement (VDA) programs “prospective only,” this could greatly increase participation and revenue collection and foster a more collaborative environment between businesses and state taxing authorities.
In the 1990s, when Janette was Missouri’s director of revenue, her senior staff encouraged her to let the Department of Revenue (DOR) try a pilot program for “prospective only” VDAs. At the time, the state was in dire need of additional revenues, and the DOR’s budget was too tight to spare resources. The pilot, however, was successful enough for the DOR’s nexus/discovery team to win a statewide Governor’s Award.
This subject resurfaced when Janette, along with co-panelists Rebecca Danley, Bureau Chief of the Tax Discovery Bureau at the Idaho State Tax Commission; Aaron C. Johnston, a Shareholder at Lane Powell and SALT Committee Chair of the Washington State Bar Association; and Sonia Shaikh, an associate with Miles Stockbridge, were asked to address state tax administrators and their staffs on the topic “Voluntary Disclosure Agreements (VDAs) – The Good, the Bad and the Ugly” at the 2024 Federation of Tax Administrators’ Annual Meeting in San Diego last June. Lohman's innovative idea sparked provocative discussions about whether this “tweak” to existing programs (i.e., eliminating the lookback period) could be a win-win for both states and businesses.
Proponents say yes, because it would speed up the process, eliminate the administrative costs associated with filing and auditing returns for the lookback periods, and encourage more businesses (no longer burdened by sometimes crippling look-back period liabilities) to come forward, thus increasing prospective state revenue collections in perpetuity. There is also other precedent for prospective-only VDAs. For instance, the states that adopted the Streamlined Sales Tax Agreement permitted taxpayers to register for use tax purposes on a prospective-only basis.
Opponents of this idea, however, claim that giving these businesses a break isn’t fair to other taxpayers who have either always been compliant or otherwise have complied with VDA look-back period requirements.
Whether any state has or will adopt some variation or pilot to test the results of a prospective-only VDA remains to be seen.
Original source can be found here.