Oklahoma Voluntary Disclosure Initiative offers relief for taxpayers owing back taxes

The Oklahoma Legislature is encouraging delinquent taxpayers to step forward and pay the taxes they owe to the state. House Bill 2380 establishes a limited, one-time Voluntary Disclosure Initiative (VDI) that will run Sept. 1–Nov. 30, 2017. This isn’t the first time Oklahoma has offered such an opportunity, but they occur rarely. The last voluntary disclosure initiative took place in the fall of 2015.

Qualifying taxpayers accepted into the VDI program must file delinquent tax returns and pay the taxes owed between Sept. 1 and Nov. 30. Those who do will not have to pay collection fees, interest, or penalties on these taxes. This can be extremely beneficial to taxpayers, as penalties and interest can be punishing. For example, failure to file sales and use tax in a timely manner can lead to penalties of 10–25 percent of the total tax due.

Taxpayers in need of a payment program can work with the Tax Commission during the disclosure period to set up a written payment program agreement.

The VDI is open to individuals and businesses that did not file required Oklahoma tax returns for tax periods ending before Sept. 1, 2017, provided the taxpayer:

• Has no outstanding tax liabilities other than those affected by the VDI
• Has not been contacted by the Oklahoma Tax Commission (or an entity acting on its behalf) regarding real or potential obligations to file and pay Oklahoma taxes
• Has not collected taxes (e.g., sales tax) from others and failed to report those taxes
• Has not entered into a voluntary disclosure agreement for the type of tax owed within the preceding three years
• Is not in active bankruptcy

Participation in the VDI offers taxpayers a chance to come clean with the state, with limited penalties. For taxpayers who fully comply with the terms of the VDI and file and pay the balance due by Nov. 30, 2017, the state will limit its look-back period (the period it can hold a taxpayer liable for unpaid taxes) to three years for annually filed taxes and 36 months for taxes without an annual filing frequency; it will also waive interest and penalties on those taxes.

It should be noted that interest and penalties will continue to accrue until taxes are paid in full. Furthermore, the waiver of interest and penalties is dependent on the taxpayer collecting and remitting all applicable taxes for at least one year after the tax periods for which taxes were paid pursuant to the VDI. Failure to do so could result in the application of interest and penalties.

The following taxes are eligible for the VDI:

• Gasoline and diesel tax
• Gross production and petroleum excise tax
• Income tax
• Mixed beverage tax
• Sales tax
• Use tax
• Withholding tax

A modified voluntary disclosure initiative is available for qualifying taxpayers who collected taxes from others (i.e., sales and use taxes or payroll taxes) but did not report them. The modified VDI differs from the regular VDI as follows:

• Interest will not be waived for taxpayers in this situation, unless granted “at the discretion of the Tax Commission”
• The look-back period is extended to include “all periods in which tax has been collected but not remitted” (instead of the three-year or 36-month look-back period)

Visit Voluntary Disclosure Initiative 2017 on the Oklahoma Tax Commission website for more details.

At this time, it’s unknown when Oklahoma will offer another voluntary disclosure program. However, the enactment of House Bill 2252 suggests that it will, at some point. The measure, which takes effect Nov. 1, 2017, amends Oklahoma’s voluntary disclosure agreement provisions in several ways. For example, while it allows a full waiver of penalties as before, it waives only 50 percent of the interest owed on outstanding taxes. See HB 2252 for additional information.

Oklahoma’s VDI should not be confused with an upcoming tax amnesty program for FBA and other marketplace sellers, which Oklahoma is also participating in.

From Aug. 17 to Oct. 17, 20 states and the District of Columbia are running a voluntary disclosure program for unregistered marketplace sellers whose only connection to the state(s) is inventory stored in warehouses or fulfillment centers owned and operated by a marketplace provider. To learn more about this tax amnesty program, read The FBA sales tax amnesty program explained.

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