RI, OH, and Other States Tax Amnesty Updates and Developments

October 2017

Summary

Tax amnesty programs and voluntary compliance initiatives are again popular among the states, as our recent SALT Alerts have addressed.  MTC On-line Marketplace Seller initiative, New Jersey, Oklahoma, Rhode Island and Texas, and Virginia.  In keeping with the trend, the Rhode Island Division of Taxation has recently issued guidelines for the Rhode Island Tax Amnesty Program that will start December 1, 2017.  Ohio’s recently enacted budget bill includes provisions for a tax amnesty program to commence on January 1, 2018.  New California legislation expands certain features of the state’s voluntary disclosure program with respect to partnerships and S corporations.  Finally, the Multistate Tax Commission (“MTC”) announced that it is extending the Online Marketplace Seller Voluntary Disclosure Initiative’s application period.         
 

Details

Rhode Island Tax Amnesty Program
 
As discussed in our prior SALT Alert, H.B. 5175 (signed August 3, 2017) required the Division of Taxation to establish a tax amnesty program.  The Division issued Advisory 2017-29 on September 27, 2017.  According to the Advisory, the Division will begin accepting amnesty applications on December 1, 2017.  The tax amnesty program will end on February 15, 2018, and applies to any taxable period ending on or before December 31, 2016.  For eligible participants, all penalties and 25 percent of interest will be waived in exchange for payment of all taxes owed for the eligible tax periods.
 
The Division also announced in its Advisory that it will be mailing notices to 90,000 taxpayers, beginning in early November.  The notices will provide the taxpayer’s account balance and an amnesty application form.  Although the Division plans to send out notices, the amnesty program also applies to those taxpayers whose Rhode Island tax delinquencies are not known to the Division. 
 
The Rhode Island Tax Amnesty Program applies to all state administered taxes and runs through February 15, 2018.  All amnesty applications and payments must be made or postmarked on or before 11:59 p.m. on February 15, 2018. 
 
Ohio Tax Amnesty Program
 
Ohio’s 2018-2019 Budget Bill (H.R. 49, August 22, 2017) included a tax amnesty program to run from January 1, 2018, through February 15, 2018.  Although the Ohio Tax Commissioner is required to establish the guidelines of the amnesty program, most state taxes are “qualified delinquent taxes,” including sales and use taxes, commercial activity tax (“CAT”), personal and school district income taxes.  Taxes must be due and payable as of May 1, 2017, be unreported or underreported, and unpaid.  In exchange for payment of the taxes due, all penalties and one-half of the interest will be waived.
 
California Expands its Voluntary Disclosure Program
 
In S.B. 813 (signed September 25, 2017), new law expands California’s voluntary disclosure program (“VDP”), effective January 1, 2018.  Nonresident partners and out-of-state administered trusts with California beneficiaries will be eligible to participate in the California VDP.  Based on a legislative analysis, California’s, like a number of other states, creation of an economic factor presence nexus standard, coupled with market-based sourcing for receipts from services or licenses of intangibles, increases the likelihood that partnerships and trusts will have a California filing obligation. 
 
The new law also expands the partnership tax penalties that are eligible for waiver under the VDP to include penalties on the failure of a limited liability company classified as a partnership for tax purposes to timely file returns and penalties related to S corporation failures to file returns. 
 
MTC Online Marketplace Seller Voluntary Disclosure Initiative Developments
 
An October 12, 2017, update issued by the MTC indicates that Rhode Island is the 25th state to join the MTC’s Online Marketplace Seller Voluntary Disclosure Initiative.  See the BDO SALT Alert for the other 24 states and a description of the MTC’s tax amnesty program.   
 
In addition, the MTC announced that the deadline for submitting an application to participate in the Voluntary Disclosure Initiative has been extended from October 17, 2017, to November 1, 2017.     
 

BDO Insights

  • While these types of state tax amnesty programs present a great opportunity for a taxpayer to come into compliance with one or more states and taxes, without having to pay penalties and with reduced interest, most states also administratively provide voluntary disclosure agreement programs with limited look-back periods that should also be considered.  
  • In addition to establishing tax compliance and a waiver of penalties, state tax amnesty programs and voluntary disclosure agreements may allow a taxpayer to reduce accounting reserves.       
  • A number of states publish “top delinquent taxpayer lists” on their department of revenue websites.  For example, related Rhode Island legislation (S.B. 719, enacted and effective July 1, 2019) requires the Division of Taxation to publish a list of corporations and limited liability companies that have failed to pay corporate income taxes and filing fees.  Thus, tax amnesties and VDAs allow a taxpayer with a large tax delinquency to come into compliance and avoid having their reputation tarnished by appearing or continuing to appear on the list.
  • Taxpayers considering participating in state tax amnesty and VDA programs should consult with their financial statement auditor and tax advisor to evaluate and determine the potential financial statement implications under ASC 740, including the impact on current and deferred taxes, uncertain tax benefits, and disclosures, as well as with respect to sales/use and indirect taxes under ASC 450, including impact on reserves and accruals.
 

For more information, please contact one of the following practice leaders: 
 
West:     Southeast:
Rocky Cummings
Tax Partner
 
    Scott Smith
Tax Managing Director
 
Paul McGovern
Tax Managing Director
 
    Tony Manners
Tax Managing Director
 

   
Northeast:     Southwest:
Janet Bernier
Tax Principal
 
    Tom Smith
Tax Partner
 
Matthew Dyment
Tax Principal
 
    Gene Heatly
Tax Managing Director
 

   
Central:     Atlantic:
Nick Boegel
Tax Managing Director
 
    Jonathan Liss
Tax Managing Director
 
Joe Carr
Tax Partner
 
    Jeremy Migliara
Tax Managing Director
 
Mariano Sori
Tax Partner
 
    Angela Acosta
Tax Managing Director
 
Richard Spengler
Tax Managing Director