Several states have informally indicated to the Multistate Tax Commission that they will consider payment plans for taxpayers that are seeking to enter voluntary disclosure agreements but are experiencing cash flow shortages during the COVID-19 pandemic.
Richard Cram, director of the MTC's National Nexus Program, said April 21 that as governors have issued executive orders limiting some business operations, the MTC has received inquiries about its policy on payment plan options for taxpayers seeking to voluntarily disclose sales and use tax economic nexus in particular.
Speaking during a Nexus Committee teleconference, Cram said payment plans typically are not part of the MTC’s voluntary disclosure process. The program’s standard VDA gives taxpayers 60 days to pay taxes owed once the MTC provides notice that a state has signed the agreement; extensions generally do not exceed 30 days.
However, Cram informally surveyed the states that are members of the Nexus Committee in late March. “Given the extraordinary circumstances that we are all going through, some states may have already adopted policies that would include a payment plan option for voluntary disclosure agreements,” Cram said in the survey. He asked whether any state tax agencies had adopted such a policy, and if so, to describe that policy.
Six states on the committee — Florida, Georgia, Iowa, New Mexico, Washington, and Wisconsin — said it is not new policy for them to accommodate payment plans for VDAs. Florida allows VDA taxpayers up to 24 months to pay back taxes owed at the market’s current interest rate, while Georgia allows VDA payment plans of up to 60 months and, because of the pandemic, will allow a 90-day grace period before such payment plans take effect.
The Washington Department of Revenue indicated that it wants taxpayers to discuss options with the DOR before the due date of the final assessment, and that the timeline for the VDA can take six months or more before a payment is due. The DOR also said that because of COVID-19, it is providing flexibility for those affected and allowing extensions.
Iowa indicated that it also likes to know upfront when a VDA applicant is seeking a payment plan, which is handled by the accounts receivable department; the standard payment plan procedures allows taxpayers up to two years to pay. Cram said the survey responses indicated that payment plans typically are a separate process within a state tax agency and generally not handled by voluntary disclosure staff.
In New Mexico, taxpayers needing more than 180 days to pay are offered payment plans but face penalties and interest.
Some of the states on the Nexus Committee responded that they do not allow payment plans in conjunction with VDAs but indicated that they might consider such requests during the pandemic period.
North Dakota indicated that it has no formal policy but would work with VDA taxpayers on a case-by-case basis, while Massachusetts and South Carolina asked that such taxpayers contact the state tax agency directly to work out details. Montana said it is open to VDA payment plans if the taxpayer requests it but that it currently does not have details for how that process would work.
Nebraska said it “has never entered into a payment plan in conjunction with a VDA, but we would be in favor of allowing such under certain circumstances.” Those conditions would include the taxpayer signing a payment plan agreement and language in the VDA indicating that failure to make the payments would void the agreement. And Tennessee said it occasionally adds a paragraph to the final VDA agreement facilitated through the MTC that allows the taxpayer to contact its collection services division within 30 days to set up a payment plan.
“At least a lot of the states were willing to give this consideration,” Cram said. “I do think it’ll encourage more applications; otherwise they will probably dry up for the time being.”
Before the pandemic, the MTC had tracked about $15.3 million in VDA collections through the third quarter of the fiscal year — an amount that exceeded the program’s back-tax collections for all of 2019, Cram said.
The Nexus Committee decided against addressing pandemic-related payment plan options in the MTC’s application for a VDA. Instead, the MTC will provide information in the instructions on its VDA application webpage saying that some states might accommodate payment plans and that taxpayers should indicate if they want one on the application. States will respond to the payment plan requests in their counteroffers; if a plan payment plan is allowed, the state in its response will provide the taxpayers with instructions and procedures. Cram added that the MTC always incorporates the state’s response to a taxpayer’s application for a VDA in the final agreement.
Correction, April 22, 2020: An earlier version of this article incorrectly included states that do not allow payment plans in conjunction with VDAs among those that indicated that they might consider such requests during the pandemic period.