In an effort to raise revenue and encourage tax compliance, taxing authorities in Ohio, Kentucky and Texas independently declared limited-time amnesty programs for certain taxpayers. These programs will allow taxpayers to pay overdue taxes without incurring the full penalty or interest rates that would otherwise apply. Businesses operating or doing business in any of these states should consult counsel to determine whether participation in these programs would protect their economic interests.
Ohio's General Tax Amnesty Program
The Ohio Department of Taxation amnesty program will begin on May 1, 2012, and will run through June 15, 2012. The program applies to most taxes administered by the Department, including Commercial Activity Tax, sales tax and vendor's use tax, employer withholdings, estate tax, and corporate franchise tax. Taxpayers will not be subject to any penalties for late payment of taxes but will owe one-half of the otherwise applicable interest charges.
Eligible taxpayers include those who did not file a required return or report originally due before May 1, 2011, or who underreported taxes or fees for any reason. The amnesty program does not apply to filing periods under audit or in situations where a settlement agreement or voluntary disclosure agreement has been signed. Further, there is no limit on the look-back for unreported taxes, so taxpayers may want to consider the benefits of the voluntary disclosure program instead of the amnesty program.
Importantly, the General Tax Amnesty Program does not include consumer's use tax. However, Ohio has an ongoing Use Tax Amnesty Program which runs through May 1, 2013, and which may provide penalty relief and limited waiver of interest for purchases made after January 1, 2009.
Kentucky's Tax Amnesty Program
On April 11, 2012, Kentucky enacted legislation that requires the Kentucky Department of Revenue to conduct a tax amnesty program. The program must be conducted for a period of 60 to 120 days during the fiscal year beginning on July 1, 2012, and ending June 30, 2013. The program will apply to most taxes administered by the Department, excluding certain property taxes. Under the program, the Department will waive all penalties and one-half of the interest due on liabilities arising between December 1, 2001, and October 1, 2011.
As a strong incentive to participate in the program, the legislation imposed several additional "cost-of-collection fees" after the expiration of the amnesty period. These fees include:
- 25 percent on all taxes that become due to the Department for any reporting period, regardless of when due
- 25 percent on all taxes assessed and collected after the amnesty period for periods ending or transactions occurring before October 1, 2011
- 50 percent of any tax deficiency for any taxpayer who failed to file a return for any period covered by the amnesty period
In addition, any amnesty-eligible tax liability that remains unpaid after the expiration of the amnesty program will accrue interest at a rate 2 percent higher than the standard applicable rate.
Texas' Fresh Start Amnesty Program
The Office of the Texas Comptroller of Public Accounts announced that it would soon begin Project Fresh Start, a tax amnesty program which will begin on June 12, 2012, and will run through August 17, 2012. The program applies to all state and local taxes and fees administered by the Comptroller's office, including sales and use taxes, franchise taxes, inheritance taxes, fuel taxes, and local-option taxes but excluding utility gross receipts assessments. Taxpayers will not be subject to any penalties or interest on the actual tax paid.
Eligible taxpayers include those who did not file a required return or report originally due before April 1, 2012, or who underreported taxes or fees for any reason. The amnesty program does not apply to taxes that were reported but not paid, and does not apply to filing periods under audit or in situations where a settlement agreement or voluntary disclosure agreement has been signed.
Tax amnesty programs are generally favorable to taxpayers, and taxpayers that owe taxes in these jurisdictions should seriously consider participation in these programs. However, taxpayers should carefully weigh the costs and benefits of these amnesty programs to determine how to most effectively maximize relief under each program.