Limited tax amnesty programs gain popularity every few years and this is one of those years. The Alabama legislature has joined the growing list of states providing amnesty programs for taxpayers with unreported tax liabilities. The Tax Delinquency Amnesty Act of 2018 was recently passed and will be in effect from July 1, 2018, to September 30, 2018. Act 2018-153 (H.B. 137), Laws 2018. The program applies to all taxes administered by the Department of Revenue, but excludes motor fuel, motor vehicle, and property taxes. Eligible tax liabilities include liabilities that became due prior to January 1, 2017, or tax liabilities for periods that began before January 1, 2017.
Similar to many recent amnesty programs, interest and penalties will be waived if the taxpayer meets the amnesty qualifications. Additionally, the lookback period for the amnesty program is three full tax years, but if a taxpayer collected tax without remitting to the state, the lookback period will be extended to include all periods back to the point of collection.
In addition to remitting historical liabilities, taxpayers will be required to include the current year return(s) with the amnesty returns for the relevant tax type. Penalties for failure to timely file and timely pay will be waived, but interest will not be waived for the current year returns.
Tax amnesty programs are usually a huge boon for all involved. The taxing jurisdiction sees an increase in tax revenue and voluntary compliance and taxpayers are able to reduce their historical tax exposure in the taxing jurisdiction, not unlike voluntary disclosure programs. However, for sales tax purposes, it may not be that simple this time.
Alabama adopted a sales/seller’s use tax economic nexus regulation in 2015 that became effective on January 1, 2016. The regulation was challenged, but hundreds of remote sellers have decided to not risk potential liability and have voluntarily registered and started to collect sales/seller’s use tax in the state. An amnesty program may entice others to do the same with the weight of the Supreme Court case South Dakota v. Wayfair looming large in the future. However, we do not yet know whether Alabama’s economic nexus provision will be upheld or how the Supreme Court will rule in the Wayfair case. If the Supreme Court rules in favor of Wayfair, these remote seller’s may have come forward without needing to do so. On the other hand, if the Supreme Court rules in favor of South Dakota, a remote seller could be liable for historical sales/seller’s use tax that it could have collected from its customers had it know it needed to do so.
As such, it is important for taxpayers to take advantage of amnesty programs when they are available to reduce historic tax liabilities in the state. Nonetheless, it is just as important for taxpayers to be mindful of their own risk tolerance, as well as outside factors and how those factors could impact a decision to come forward in a taxing jurisdiction.