State tax amnesty programs: the advantages and disadvantages.

Editor's note: Mr. Peterson chairs the AICPA Tax Division's State & Local Tax Technical Resource Panel (TRP). Ms. Nakamura is a member of the TRP.

For more information about this column, contact Mr. Peterson at [e-mail] or Ms. Nakamura at [e-mail].

Tax amnesty programs offer qualified taxpayers an opportunity to clear outstanding tax liabilities in exchange for a complete or partial abatement of interest and penalties that might otherwise be imposed. In addition, they provide states and localities much-needed revenue without the costs associated with audit and enforcement.

Although the programs are generally a "win" for taxpayers and tax administrators alike, taxpayers should address a number of important considerations before signing on to any amnesty program. This column summarizes some of those considerations, and cautions readers to speak with their tax adviser before taking any action.

States' Motivation for Amnesty

In general, amnesty programs are intended to improve overall compliance with tax laws by eliminating underreporting errors and adding nonfilers to the tax rolls. In addition, they give states and localities an easy way to generate a one-time revenue boost, with the trope of continued revenue flow through improved compliance. Most importantly, they are a quick solution to budget short falls, which have been significant in recent years. For example, a study by the National Conference of State Legislators (NCSL) found that states are running a $2.5 billion cumulative budget gap for 2004. (1) While the 2004 gap represents an improvement over the 2003 gap of $25.7 billion, the improved financial outlook may be short-lived; the states project a $35 billion cumulative budget gap for 2005, with little opportunity for an easy fix (such as the use of "rainy day" funds, which many states raided in 2003 and 2004). A second NCSL study indicates that budget gaps may well increase as a result of various "unfunded mandates" that it says Congress and the administration shifted to the states. At last count, the study asserts, the cost of implementing Federally mandated programs was estimated at $29 billion, or 6% of overall general fund revenues, for fiscal 2004, and $34 billion, or 7% of overall general fund revenues, for fiscal 2005. (2)

Amnesty Programs in General

Generally, amnesty programs are offered pursuant to specific statutory authority or as a matter of administrative grace. (3) While some programs offer amnesty for local, as well as state, taxes, (4) others (5) leave it up to local taxing jurisdictions to decide whether they will participate in an amnesty program.

Interest and penalty waivers: The most common feature of an amnesty program is the waiver of all penalties and a complete or partial waiver of interest. For example, under a Kansas amnesty program offered from Oct. 1-Nov. 30, 2003, qualifying taxpayers received an abatement of all penalties and interest owed on outstanding liabilities remitted during the amnesty period. (6) Under a North Dakota amnesty program offered from Oct. 1, 2003-Jan. 31, 2004, taxpayers received a waiver of all penalties and 75% of the interest that would have otherwise been assessed on overdue taxes. (7) Taxpayers participating in Marne's amnesty program received an abatement of all civil and criminal penalties and 50% of the interest that might have otherwise been imposed on amounts remitted under the program. (8)

Note of caution: The reduced interest rate and penalty provisions are somewhat of a "carrot and stick" approach to tax collection. More often than not, states follow amnesty with increased penalties and stricter enforcement. (9) For example, Florida offered tax amnesty from July 1-Oct. 31, 2003. (10) During the amnesty period, interest on outstanding liabilities was assessed at 75% or 50% of the statutory prime rate (the higher percentage was imposed on taxpayers already being audited). After amnesty, interest rates on delinquent taxes increased from prime to prime plus four percentage points, retroactive to Jan. 1, 2000.

New York adopted a similar strategy during an amnesty period that ran from Nov. 18, 2002-Jan. 31, 2003. (11) Participants had penalties waived and received a two percentage-point reduction in the interest rate on their outstanding liabilities. However, starting April 1, 2003, interest rates increased an additional two percentage points over pre-amnesty levels, resulting in an overall swing of four percentage points in the interest rate.

Virginia legislation offered taxpayers a chance to clear past liabilities during an amnesty period that ran from Sept. 2-Nov. 30, 2003, and granted a waiver of 50% of the interest otherwise due and all penalties. (12) However, eligible but nonparticipating taxpayers are subject to an additional 20% penalty on any unpaid amounts after amnesty. Illinois took a more severe posture as to post-amnesty interest. It offered amnesty from Oct. 1-Nov. 15, 2003, and provided a waiver of all interest and penalties for payments made during the amnesty period. (13) Taxpayers with outstanding liabilities that qualified for amnesty, but that did not participate, became subject to penalties of 200% of the pre-amnesty interest and penalties.

The increased post-amnesty interest and penalty provisions raise several concerns for taxpayers and tax administrators. One is how to handle penalties and interest owed on issues arising as a result of a court challenge or policy clarification subsequent to amnesty, but that affects years to which amnesty applied. With many of the increased interest rates and penalties mandated under the statute, and limited ability for waiver outside a reasonable-cause exception, increased interest and penalty costs may be an unintended outcome in certain situations. As one practitioner noted, even well-intentioned taxpayers may be caught in the "penalty dragnet" that seems to be intended for more long-term delinquencies. For example, if some states apply the increased penalty provision literally, an assessment under appeal during the amnesty period that is resolved against the taxpayer after the program ends would be subject to increased penal ties, even though the taxpayer acted in good faith. This could be a major trap for the unwary; taxpayers will need to seriously consider the ultimate "downside" of such an outcome.

Taxes and tax periods: In general, amnesty programs apply to most taxes administered by a taxing agency and to all tax periods open under the statute of limitations (SOL). However, some states may limit the type of taxes and the length of lookback for administrative case or other reasons.

For example, Florida's amnesty program applied to qualifying tax liabilities due before the first day of the amnesty period. (14) Similarly, Texas's amnesty program, which ran front March 11-March 31, 2004, applied to all state and local taxes administered by the Comptroller of Public Accounts, including local option taxes, except unclaimed property and Public Utility Commission gross receipts assessments, for all filing periods with reports due before Feb. 1, 2004. (15) Maine also included liabilities outstanding up to its amnesty program start date. (16)

In contrast, Arizona limited amnesty filings to all taxes administered by the Department of Revenue (DOR) or an Arizona county (except estate and property taxes) and owed from Jan. 1, 1983-Dec. 31, 2001. (17) Similarly, Illinois limited its amnesty program to taxes owed for tax periods ending after June 30, 1983, and before July 1, 2002. (18) The fixed starting point may be due in part to earlier amnesty programs in those states. (19) Kansas's amnesty program applied to income and privilege tax liabilities due for tax periods ending on or before Dec. 31, 2001. (20) A Dec. 31, 2002, start date applied to other select taxes, including sales and use, withholding and severance.

Missouri's amnesty program, which ran from Aug. 1-Oct. 31, 2003, applied to qualifying taxes due and unpaid before Jan. 1, 2003. (21) Similarly, Virginia's program did not apply to any outstanding assessment for which the assessment date was less than 90 days prior to the program's start date, or for any liability arising from failing to file a return for which the due date was less than 90 days prior to the first program day. (22) In addition, amnesty did not apply to income tax liabilities for periods beginning on or after Jan. 1, 2002.

New York City offered a program from Oct. 20, 2003-Jan. 23, 2004, limited to select taxes and liabilities arising or transactions occurring on or before Dec. 31, 2001. (23) Amnesty did not apply to resident and nonresident income taxes and sales and use taxes, which are administered by the state. By limiting amnesty to older liabilities, the program appears to have kept to the administration's intended goal "to clean its books of millions of dollars of old and bad debt." (24)

Definition of "qualifying taxpayer" varies by state: In general, amnesty programs are designed to be broadly applicable. Accordingly, they often apply to taxpayers currently filing returns, as well as to those that have not registered with the taxing agency. In addition, state programs may apply to taxpayers currently under audit or in the administrative appeals process. Almost always excluded from amnesty are taxpayers that are under a criminal investigation or those that have been convicted of violating a state revenue law. (25)

For example, Texas's amnesty program applied to taxpayers that: (1) did not file a required return or report; (2) misrepresented, understated or omitted any tax liability on a previously filed return; (3) erroneously claimed a credit or deduction; (4) had an outstanding bill with the Comptroller or a private agency representing the Comptroller; (5) were undergoing or scheduled for an audit; or (6) had a liability that was the subject of a formal protest or an administrative hearing. (26)

In contrast, New York's program was not available to taxpayers with more than 500 employees nationally or whose combined filing group had more than 500 employees nationwide. (27) Similarly, Arkansas's amnesty program, which runs from July 1-Sept. 30, 2004, does not apply to taxes, penalties and interest recorded on the account records of the Director of the Department of Finance, any state tax for which the Director has issued a notice of proposed assessment, and any amount that a taxpayer expects to become due as a direct or indirect result of a pending or completed audit or investigation that the taxpayer knows is being conducted by any Federal, state or local taxing authority. (28)

Amnesty applications, tax returns and payment: In general, states will require taxpayers coming forward under amnesty to submit an application disclosing information about operations. In addition, most states will require taxpayers to file all outstanding returns; however, some states may allow a taxpayer to file a spreadsheet listing its liability for the various tax years. (29) With the ultimate goal of getting revenue, states will require that taxpayers remit out standing liabilities by die close of amnesty or shortly thereafter). (30) Failure to timely remit amounts owed often results in penalties and interest assessments. Some states will allow taxpayers to enter into installment payment arrangements; however, interest generally applies to installment payments received after amnesty ends. (31)

Watch for waiver of appeal rights: To guarantee that amnesty collections are not subsequently reduced by refund claims, various states require taxpayers to waive their rights to payments made under amnesty. For example, taxpayers that participated in the Colorado tax amnesty program during June 2003 were required to waive the right to file a refund claim or seek administrative or judicial review regarding any tax liability presented during amnesty. (32)

Similarly, taxpayers that participated in Florida's amnesty program waived their rights to appeal taxes reported under it. (33) In addition, if the taxes were already the subject of a pending informal protest, or administrative or judicial proceeding, a taxpayer was required to withdraw the protest or withdraw from the proceeding to participate in the amnesty program.

Under the Texas program, taxpayers were required to waive their appeal rights for any appeal or assessment that was the subject of a protest or administrative hearing. Per the Comptroller's office, prepayments and estimates remitted during the amnesty period were available for refund; however, the refund may be limited under the state's $250,000 refund cap rules, unless it is requested within 120 days of the original return's original or extended due date. (34)

Missouri's amnesty provisions stated that taxpayers that elected to participate were deemed to have made an express and absolute relinquishment of all administrative and judicial appeal rights. (35) Arizona's tax amnesty statute included comparable language. (36) Participants in the North Dakota amnesty program had to agree to withdraw any pending protest or proceedings on the tax and interest covered under the amnesty application and to not refile any protest or proceedings.

Publicity

The success of an amnesty program is often tied to how well the program is publicized. For example, Joan Wagnon, Secretary of the Kansas DOR, attributes the increased awareness of her state's amnesty program to the assistance of the Kansas Association of Broadcasters, who developed, produced and aired a public service announcement about the program. Those efforts, coupled with the support of tax professionals, contributed to the state's success in generating over $23.6 million, well in excess of the $19.5 million estimate. (37)

That outcome is dwarfed by the success of the Illinois amnesty program, which generated over $500 million. The Illinois DOR sent program notices to 180,000 taxpayers; approximately 70,000 made amnesty payments. (38) Preliminary figures suggest that 90% were individuals, although they accounted for only 5% of total collections, at an average of $400 each. The remaining 95% came from corporate income taxpayers. Of that, roughly $150 million was from companies paying income taxes they thought they would eventually owe as a result of IRS audits for tax periods covered by amnesty.

That success is in marked contrast to the results of an earlier Maryland amnesty program during which the state hoped to generate $70 million in revenue. (39) The program, which ran from Sept. 1-Oct. 31, 2001, generated only $40 million, approximately $21 million from personal income tax and $4 million from corporate income tax, (40) with more than 70% of total collections being received in the last week of amnesty. (41) The shortfall occurred despite approximately $1 million spent for an aggressive advertising campaign. (42)

Texas took a novel approach to its amnesty program, called "Project Pay Up," and waited until the day before the program began to post an announcement to its website. While the program ultimately generated about $379 million, far in excess of the $50 million projected, (43) one could question the decision not to promote the program with more fanfare.

Measuring Success

One issue that receives scant attention when states tout their amnesty results is how they account for revenues. States that include amounts received from taxpayers currently under audit or those with outstanding liabilities in their amnesty totals may overstate a program's true success. Although offering such taxpayers an opportunity to pay liabilities early may speed collection and reduce costs associated with litigation, those revenues represent amounts the state may well have received at the close of the audit. In addition, by providing amnesty to such taxpayers, states may actually shortchange themselves due to the loss of interest and penalties.

For example, Illinois generated over $500 million during its amnesty program. (44) The Illinois DOR estimates that approximately $175 million of the total amount collected was "new" money that would not have been collected absent amnesty, compared to initial government estimates of $40 million. If over $325 million actually represents amounts that would have been collected anyway; the state may have lost a lot of interest and penalty revenue by permitting the payment of those taxes under amnesty.

Conversely, collections from taxpayers already in the system may be a bit overstated. If taxpayers viewed the interest and penalty waiver provisions as a significant incentive to concede issues they otherwise would have challenged, a state might have collected more than may eventually have been due. Taxpayers may have weighed the additional tax expense against the litigation costs and the potential for significant interest and penalties if they did not succeed. That analysis may have resulted in taxpayers seeing amnesty as the more reasonable choice to limit potential exposures and the complexities those exposures might have created for financial-reporting purposes.

The North Dakota Tax Department announced on March 22, 2004, that it collected $6.9 million during its amnesty program. (45) Included is $6.1 million from taxpayers paying off existing tax liabilities, most of which had been included in the state budget forecast. Taxpayers also paid on tax audits and filed amended returns that increased their original tax liabilities. Of the total amount collected through amnesty, the Department received about $806,000 from 185 new taxpayers filing returns dating back as far as 1976. The Department noted that it received a total of 752 amnesty applications, some containing returns dating back to the 1970s. Sixty-one percent of the taxpayers applying for amnesty were individuals, 25% were businesses, 8% were corporations and 6% were applications for miscellaneous taxes. The Department believes that the program was somewhat of a compliance "litmus test." The fact that only 185 new fliers were added to the existing base of 375,000 taxpayers suggests that there is a high level of voluntary compliance by North Dakota taxpayers, the Department says.

The Arizona DOR noted in its December 2003 Tax News that it collected $73 million, far in excess of its $25 million goal. However, $22 million of the total amount collected represented money the DOR believes it would have collected through existing audit programs. The DOR reasons that its overall results were a great success, because it spent less than $75,000 in direct expenses (e.g., advertising, printing, postage, telephones and temporary employees); it called the results a "phenomenal return" on its investment (i.e., $1,000 for each $1 spent).

The results of New York City's recent amnesty program may more accurately reflect "new" revenues. The Commissioner of the New York City Department of Finance, announced on March 4, 2004, that the city's business tax amnesty generated $80 million. (46) In general, the program granted a penalty waiver and limited interest to amounts that accrued after Oct. 19, 2000. Interest accrued before Oct. 20, 2000, was waived. While that amount may seem small when compared to Illinois, or the $520 million adjusted gross revenues collected in New York State, (47) it should not be overlooked. The $80 million far exceeds the $20 million that the Office of Management and Budget originally asked the Department to collect. More importantly, the city's amnesty program specifically excluded taxpayers granted amnesty for the same tax under a previous program, those subject to a pending field or desk audit, as well as those currently making installment payments of back taxes, among others.

Law Changes May Provide Amnesty Window

The recent successes of state tax amnesty programs may be due to an increased focus on tax shelters in recent years. For example, California enacted tax shelter legislation in 2003 that mirrors the proposed Federal legislation in many respects. (48) The legislation generally incorporates the Federal definitions of listed and reportable transactions, and authorizes the Franchise Tax Board (FTB) to identify for California income or franchise tax purposes other transactions "as having a potential for tax avoidance or evasion...." The legislation contains penalty and nonpenalty provisions. Many penalty provisions retroactively apply for any penalty assessed on or after Jan. 1, 2004, on any return for which the SOL on assessments has not expired. The nonpenalty provisions are generally effective starting Jan. 1, 2004.

The California legislation included a type of amnesty program called the Voluntary Compliance Initiative (VCI) program; it ran from Jan. 1-April 15, 2004, and generated approximately $1 billion, more than 10 times initial expectations. (49) The VCI program applied to liabilities attributable to the use of abusive tax avoidance transactions (50) for tax years beginning before Jan. 1, 2003. The program offered two options, VCI without appeal or VCI with appeal; taxpayers had to apply one of these options to all years.

In brief, the VCI without appeal provisions allowed the FTB to waive and abate penalties for an understatement for all years that the taxpayer elected to participate in the program, by filing amended returns reporting all income and losses without regard to the use of abusive tax avoidance transactions. The taxpayer had to (1) pay all taxes and interest due and (2) agree not to file refund claims for amounts paid in connection with abusive tax shelters. The FTB could not waive or abate penalties imposed on a tax assessment that became final before Dec. 31, 2003.

While VCI with appeal was similar in form to VCI without appeal, the former allowed a taxpayer to file refund claims. In addition, the taxpayer could file an appeal to the State Board of Equalization (SBE) after the later of action by the FTB on the claim or the later of one of the following: (1) 180 days from the date of a final IRS determination as to the transaction; or (2) four years from the date a refund claim was filed or one year after full payment of all taxes, including penalties and interest. Taxpayers that did not prevail on their claims were subject to an accuracy-related penalty in effect prior to Oct. 2, 2003. The taxpayer was required to pay that penalty, if assessed, before its appeal. The FTB could not waive penalties imposed on an assessment of taxes that became due or payable before Dec. 31, 2003.

Texas legislation enacted in 2003 that amended statutory provisions dealing with property tax compliance beginning in the 2003 tax year adopted somewhat of a "velvet glove" approach to nonfilers. (51) The legislation was enacted to resolve ongoing disputes between taxpayers and assessors in many Texas counties, where some taxpayers asserted that the reporting provisions of property laws were directory, not mandatory, because the statutes did not impose a penalty on failing to file a report. The legislation adopted penalties for the failure to properly disclose the requisite information for 2003, and effectively declared 2001 and 2002 returns to be safe from audit, if the information for 2003 was timely provided.

Maryland legislation pending as this column went to print would build on a 2003 settlement offer to intangible holding companies. (52) That offer provided taxpayers a onetime opportunity to pay outstanding assessments by Jan. 30, 2004, at a reduced penalty rate. (53) The offer was also extended to other similar holding companies scheduled for audit, and companies not yet identified. The latter group had until March 1, 2004, to take advantage of the offer.

The proposed legislation would require the Comptroller to administer a "settlement period" from July 1-Dec. 31, 2004, during which tax payers could elect to have additional income tax calculated for tax years beginning on or after Jan. 1, 1996, and ending on or before Dec. 31, 2003. The additional tax would be calculated as though otherwise deductible payments were added back to the taxpayer's Federal taxable income, or as though the payee was subject to the Maryland corporation income tax. All penalties would be waived, interest would not exceed 6.5%, and, for tax years beginning before Jan. 1, 1996, no taxes would be assessed.

Other Considerations

State amnesty programs may offer taxpayers under IRS examination an opportunity to avoid penalties and interest from IRS adjustments and revenue agents' reports, even in situations when the IRS audit is still open. In addition, state amnesty programs may provide taxpayers an opportunity to clear liabilities that they did not focus on before, such as withholding tax and unclaimed property.

A business that employs sales representatives to travel to various states to solicit sales of tangible personal property may not be subject to corporate income tax if the representatives' activities are protected under P.L. 86-272. However, the representatives may be subject to individual income tax in the states to which they travel. The obligation to report and pay tax on individual income earned in a state often begins with the employer, who bears the burden of withholding the proper amount of state tax on income that an employee earns in the various states. Employees subject to withholding include line employees, as well as officers, directors and other executives paid wages under an employment agreement. Failure to properly withhold income taxes often leads to significant exposure for unremitted taxes, in addition to penalties and interest.

Another important consideration is voluntary disclosure. A number of states give taxpayers an opportunity to enter into voluntary disclosure agreements (VDA) to bring their accounts up to date. While provisions vary by state, VDA programs generally allow the taxpayer to limit the lookback period to the most recent three or four tax years and provide a waiver of penalties that might otherwise be assessed on outstanding liabilities; such programs may also limit interest. VDAs are generally negotiated on behalf of a taxpayer on an anonymous basis by the taxpayer's representative, with taxpayer-specific information disclosed only after the agreement's terms are formalized.

As with amnesty, VDA programs may be offered pursuant to legislative authority or administrative grace, (54) and may or may not remain in effect during amnesty. For example, the Massachusetts DOR revoked its VDA program shortly alter the legislature enacted an amnesty program. (55) The DOR cited the difference in lookback periods as the most pressing reason for denying program participation. The VDA program was reinstated on Aug. 29, 2003, well after the amnesty program ended on Feb. 28, 2003. (56) The reinstated program limits the lookback period to the three most recent tax years, and allows the DOR to waive penalties for reasonable cause.

Florida is actively promoting its VDA program to taxpayers that missed amnesty. (57) The program limits the lookback period to the three years immediately preceding the VDA application postmark date. In general, penalties are waived, unless tax has been collected and not remitted. In that case, a 5% penalty applies. While interest is assessed at the statutory rates, the ability to limit the lookback period can result in significant savings for taxpayers.

Alternatively, taxpayers may want to consider asking the state whether they qualify for a managed audit. (58) Generally available only to taxpayers with an established filing history, managed audit programs allow taxpayers to conduct a self audit by using state-specific guidelines. As with VDA, managed audits generally provide a waiver of penalties and may limit interest. One of the main advantages is the ability to conduct the self-audit during a more reasonable time frame, and avoid the last-minute rush that most amnesty fliers experience.

Conclusion

Amnesty gives taxpayers an important opportunity to clear past exposures and limit costs associated with penalties and interest. However, given the significant lookback period and the waiver of appeal rights, it is not for everyone. VDAs or managed audits might be more appropriate to a specific situation, especially if nonfiling exposures are significant. Accordingly, taxpayers should care fully analyze all their options before signing on the dotted line.

(1) NCSL, "State Budget Shortfalls Drop Dramatically According to New NCSL Budget Analysis" (2/19/04), at www.ncsl.org/ programs/press/2004/pr040310.htm.

(2) NCSL, "States Get Stuck With $29 Billion Bill" (3/10/04), at www.ncsl.org/programs/press/2004/ pr040310.htm.

(3) See 2003 AZ HB 2533, Section 85 (enacted 6/17/03); 2003 AR Act 70, Section 2 (HB 1100, enacted 2/2/04); CO Rev. Star. Section 39-21-20l, added by 2003 CO Laws Ch. 26 (SB 03-185, enacted 3/5/(13); 2003 FL Laws, Ch. 2003-395 (SB 18A, enacted 6/18/03), FL Admin. Rule 12ER03-6; HI HB 2597 (introduced 1/27/04), SB 3151 (introduced 1/30/04); 2003 IL P.A. 93-26, Section 26 (SB 969, enacted 6/20/03); 2003 KS HB 2416 (enacted 5/23/03); ME Rev. Stat. Ann. Section 6572, added by 2003 ME L.D. 1319 (enacted 3/27/03), amended by L.D. 1614 (Section E-9), enacted 06/12/03; 2002 MA Laws Ch. 184 (HB 5300), eff. 7/1/02 (see MA Dep't of Rev. (DOR), Taxpayer Info. Rel. (TIR) 02-14 (9/26/02), 2002 MA Laws Ch. 429, MA DOR, TIR 02 25 (12/31/02); MO Rev. Stat. Section 136.320 et seq., added by 211/13 MO HB 600 (enacted 7/1/03); 2004 NE L.B. 1017. enacted 4/15/04; NV Tax Comm'n, Emergency Regs. Section 360.419; 2002 NY AB 9762-B (enacted 5/29/02); NYC Admin. Code Section 11-127, added by 2003 NY AB 8388 (veto override 5/19/03); 2003 ND Laws Ch. 36, Section 49 (SB 2015, enacted 5/23/03); TX Comp'tr of Pub. Accts., "Texas Tax Amnesty 2004" (3/10/04); VA Code Ann. Section 58.1-1840.1, added by 2003VA Laws Ch. 24 (SB 1030, enacted 3/16/03);W VA Code Section 11-10D-1 et seq., 2004 W VA SB 148 (enacted 4/1/04).

(4) See AZ HB 2533 (enacted 6/17/03).

(5) See, e.g., Denver Treasury Division, "Denver Amnesty Rules" (5/15/03); City of Aurora, CO.

(6) See 2003 KS HB 2416 (enacted 5/23/03).

(7) See 2003 ND Ch. 36, Section 49 (SB 2015, enacted 5/6/03), authorizing the Commissioner to institute tax amnesty.

(8) See ME Rev. Star. Ann. Section 6572.

(9) See, e.g., ND Office of State Tax Comm'n, Sales Tax Newsletter (September 2003).

(10) 2003 FL Laws, Ch. 2003-395 (SB 18A, enacted 6/18/03); FL Admin. Rule 12ER03-6.

(11) 2002 NY AB 9762-B (enacted 5/29/02).

(12) See VA Code Ann. Section 58.1-1840.1.

(13) 35 IL Comp. Stat. Section 735/3-2(f).

(14) See note 10, supra.

(15) See Comp'tr of Pub. Accts., "Texas Tax Amnesty 2004" (3/10/04).

(16) See ME Rev. Stat. Ann. Section 6572.

(17) 2003 AZ HB 2533, Section 85B (enacted 6/17/03).

(18) IL uncodified legislation, 2003 IL Laws, P.A. 93-26 (SB 969), Section 10.

(19) See Federation of Tax Administrators, "State Tax Amnesty Programs" (3/24/04). Arizona offered an amnesty program from Nov. 22, 1982-Jan 20, 1983. Illinois offered an amnesty program from Oct. 1-Nov. 30, 1984.

(20) 2003 KS HB 2416 (enacted 5/23/03).

(21) MO Rev. Stat. Section 136.3285.

(22) VA Code Ann. Section 58.1-1840.1.

(23) NYC Admin. Code Section 11-127(A).

(24) See NYC Dep't of Fin., Testimony of Comm'r (3/4/04).

(25) See, e.g., 2003 AR Act 70, Section 2 (HB 1100, enacted 2/2/04), and note 10, supra.

(26) See note 15, supra.

(27) See note 11, supra.

(28) 2003 AR Act 70, Section 2 (HB 1100, enacted 2/2/04)

(29) See id.; compare, e.g., IL DOR, Info. Bull., FY 2004-11 (August 2003), 86 IL Adm. Code Section 521.105.

(30) See NYC Dep't of Fin., "NYC Tax Amnesty 2003" (10/20/03).

(31) WVA 11-10D 7 (installment payments subject to interest at 50% of the statutory, rate)

(32) CO Rev. Stat. Section 39-21-201(c).

(33) See note 10, supra.

(34) Refund requests in excess of the $250,000 cap must be approved by the legislature.

(35) See MO Rev. Stat. Section 136.320(4).

(36) See 2003 AZ HB 2533, Section 85(G).

(37) See KS News Release, "Governor Kathleen Sebelius and Secretary of Revenue Joan Wagnon Announce Kansas Tax Amnesty Program is a Success!" (11/12/03), at www.ksgovernor.org/news/docs/news_rel121203a.hml.

(38) See Lovett, "Illinois Hits Half-Billion Jackpot With amnesty Revenue," State Tax Today, Doc. 2003-26210 (12/10/03).

(39) See MD General Assembly, Session 2001, Department of Legislative Services, Fiscal Note HB 828 (revised 4/26/01)

(40) See Setze, "FTA Speakers on Tax Holiday, Amnesty: Resistance is Futile," State Tax Today, Doc. 2002-13458 (6/5/02).

(41) See MD News Release, "Comptroller Schaefer Says Amnesty Nets $39 Million" (11/27/04).

(42) See Ketchum, "Maryland Amnesty's $39.2 Million Falls Well Short of Projection, "State Tax Today, Doc. 2001-29769 (11/29/01).

(43) See Letter to Governor Perry from Carol Keeton Strayhorn, Texas Comptroller of the Public Accounts (4/19/04), at www.window.state.tx.us/comptrol/ letters/040419revest.pdf.

(44) See Lovett, note 38 supra.

(45) See ND Office of State Tax Comm'n, "Tax Department Collects $6.9 Million in Taxes from Amnesty Program" (3/22/04), at www.state.nd.us/taxdpt/ media/pressrel/2004/3-22-04.html.

(46) See note 24, supra.

(47) See Tax Amnesty, Review of New York State's 2002-2003 Amnesty Program, NYS Dep't of Tax'n and Fin, Match 2004, at www.tax.state.ny.us/pdf/stats/ Policy_Special/2002_2003_Amnesty/Tax_Amnesty_2002_2003.pdf

(48) 2003 CA AB 1601 (SB 614, enacted 10/2/03).

(49) See Legislation By Assembly Majority Leader Frommer, Senator Cedillo, Rakes In $1 Billion For Stare, Assembly Member Frommer News Release (4/26/04), at http://democrats.assembly.ca.gov/members/a43/mainpage.htm.

(50) An abusive tax avoidance transaction is a plan or arrangement devised for the principal purpose of avoiding tax, and includes listed transactions.

(51) TX SB 340 (enacted 6/20/03).

(52) MD 2003 SB 187 (enrolled and sent to governor 4/12/04). SB 187 is contingent on the enactment of HB 297, also enrolled and sent to the governor on April 13, 2004. HB 297 would require an addback of interest and intangible expenses paid between related entities and grant the Maryland Comptroller Internal Revenue Code Sec. 482-type powers The governor has until late May to act on these bills. The governor vetoed similar addback provisions contained in a bill passed by the legislature in 2003. It remains to be seen whether the governor will veto one or both of the current bills.

(53) See MD Comp'tr of Pub. Accts., News Release (12/2/03).

(54) See, e.g., "Voluntary Disclosure of Sales aid Use Tax Liabilities," at tax.ohio.gov/ business sales tax_voluntary_disclosure.html.

(55) See MA DOR, TIR 02-13 (8/13/02).

(56) See MA DOR, TIR 03-17 (8/29/03).

(57) See the FL DOR website, at sun6.dms.state.fl.us/dor/amnesty/.

(58) See, e.g., TX Tax Code Section 151.0231 (managed audit program (MAP) allows certain taxpayers to perform managed audits of sales and use taxes under the supervision of the Comptroller of Public Accounts. The taxpayer's compliance history is a consideration in whether a managed audit will be allowed; the Comptroller, in her sole discretion, may authorize a managed audit by a taxpayer under a written agreement between the parties setting forth the audit's parameters, and subject to the Comptroller's review and examination of the audit results Section 151.0231 (g) provides for a penalty waiver and allows the Comptroller to waive all or a part of the interest otherwise due oil any tax determined to be owed as a result of the managed audit. Section 151.0231 (h) authorizes a refund if certain criteria are met. See also CT Gen. Stat. Section 12-420c (authorizing managed audits for sales and use tax purposes). If a taxpayer is accepted into the managed audit program, the Department of Revenue Services may waive the first $10,000 of interest and 10% of the interest in excess of $10,000; penalties may also be waived.); NM Star. Ann. Section 7-1-11.1 (New Mexico does not impose penalties on liabilities resulting from managed audit assessments and will waive interest when the audit assessment is paid within 30 days of the date the Taxation & Revenue Department issues the assessment.); KS Stat. Ann Sections 79-3660, -3661 and -3664 (to participate, the taxpayer must have shown willingness to comply with Kansas state laws and maintained an acceptable system of business records; interest on assessment computed at 50% of the rate that would otherwise be imposed);VA DOR. Ruling of Comm'r. P.D. 99-231 (8/11/99); OH Rev. Code Ann. Section 5739.133; CA Rev. & Tax Code Sections. 7076-7076.5 (at the SBE'S discretion and in a manner consistent with the efficient use of audit resources, a taxpayer is eligible for the MAP only if all of the following criteria are met: (1) the taxpayer's business involves tow or no statutory exemptions; (2) the taxpayer's business involves a single or small number of clearly defined taxability issues; (3) the taxpayer is taxed pursuant to the MAP and agrees to participate; and (4) the taxpayer has the resources to comply with the MAP instructions provided; interest usually assessed at 50% rate).

Karen Nakamura, CPA 

State & Local Director

SALT Knowledge Management Group

PricewaterhouseCoopers LLP 

Washington, DC