States May Consider Back-Tax Payment Plans For Pandemic

By Paul Williams
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Law360 (April 21, 2020, 5:06 PM EDT) -- Several states are willing to offer payment plans for back taxes to businesses that enter into voluntary disclosure agreements during the novel coronavirus pandemic, tax administrators said during a Multistate Tax Commission committee meeting Tuesday.

Payment plans for back taxes during the novel coronavirus pandemic were discussed at a meeting of the Multistate Tax Commission on Tuesday.

Some state tax agencies have offered payment plans in conjunction with their voluntary disclosure agreements, or VDAs, from before the pandemic, and others will consider providing flexible payment arrangements, according to a survey of state taxing authorities discussed during a meeting of the MTC's nexus committee.

The MTC has not historically included payment plans through its VDA program. But given the survey's results, the commission will update its website to reflect that companies can ask to enter into a payment arrangement, Richard Cram, director of the MTC's national nexus program, said.

Companies typically have 60 days to pay their back taxes after receiving a notice from the MTC that the state has signed the agreement. But Cram said the commission wouldn't want to stand in the way of a state's wish to work with companies in light of the economic downturn attributable to COVID-19, the respiratory illness caused by the virus.

"The conclusion was that a lot of the states were willing to give this consideration," Cram said of the results of the survey regarding offering payment plans.

VDAs allow companies to come forward and settle unpaid tax liabilities to states without incurring penalties, and often shield a company's identity until the agreement is approved.

Christy Vandevender, chairwoman of the nexus committee, said some states may have statutory limitations on their authority to grant payment plans. The MTC's program will defer to the states, which have the discretion to permit or disallow payment plans on an individual basis, she said.

According to Cram, businesses should ask to enter into the payment arrangements when they apply for the VDA. The states would then include their response to the request, including the potential terms of the payment plans, in their counteroffer to the businesses.

Business community representatives indicated during the meeting that a more flexible payment arrangement could benefit both large and small companies that may not have the cash flow to pay their tax liabilities over a couple of months.

Todd Lard of Eversheds Sutherland said a software provider that was preparing to enter into some VDAs before the onset of COVID-19 now may not be able to quickly satisfy its back-tax obligations.

Meanwhile, Diane Yetter of the Sales Tax Institute and Yetter Tax Consulting said small businesses have considered the 60-day payment period too stringent for several years. She said some companies can't pay their back taxes within that time frame and have elected to eschew a VDA and take the chance of not being audited.

"This is all uncollected tax, and it just can be devastating to some companies," Yetter said. "They are more willing to just stay under the radar and even not register to start collecting going forward because the risk is higher to be caught if you're registered than not dealing with it at all."

Cram said the payment plan option for the MTC's program is intended to be temporary during the pandemic, but added that the commission could determine later whether to make it permanent.

--Editing by Neil Cohen.

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