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The Multistate Voluntary Disclosure Program (“MVDP”) is one option that businesses might consider when searching for a way to disclose delinquent tax liabilities. This article explores the potential benefits and drawbacks of choosing the MVDP as opposed to Voluntary Disclosure Applications (“VDA”) which are traditionally filed individually by the state.
Unlike traditional VDAs, the MVDP provides taxpayers a way to disclose tax liabilities to multiple states all in one uniform application. However, not all states participate. Participating states belong to what is known as the National Nexus Program (“NNP”) which helps facilitate MVDP applications for member states. Currently, the following states are NNP members:
Arizona Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Iowa
Massachusetts Michigan Missouri Montana Nebraska New Hampshire New Mexico North Carolina Louisiana Maryland
North Dakota Oregon Rhode Island South Carolina Tennessee Texas Vermont Washington Wisconsin
Taxpayers have the option to file an MVDP application themselves or have a third party handle it, similar to traditional VDAs. While the option for a singular application may appear appealing (and in some cases it can be a great option), there are some drawbacks. Below is a discussion of the Pros and Cons for proceeding with an MVDP.
MVDP: The Pros
There are two key reasons why businesses may decide to opt for the MVDP program as opposed to the traditional VDA programs:
The business has the capital to pay fines and unpaid back taxes for several states. Where cost is less of a concern and becoming compliant is the highest priority, it may make sense to file with the MVDP (assuming the states where the taxpayer has tax liabilities are NNP members). Large companies without cash-flow concerns and small companies whose tax liabilities are likely to be minor are some examples of taxpayers who might choose to take this route.
The business is concerned about a looming audit (or may have already been contacted in one or more states). In such cases, the strategic decision may be speed over savings. Once a state contacts a taxpayer to inquire about possible tax liabilities, it is no longer eligible to file for a VDA and benefit from a negotiation of penalties and a limit of the lookback period. For taxpayers with significant unpaid tax liabilities that are concerned they will be contacted by a state, the MVDP’s streamlined application offers a good option for becoming compliant before being contacted for a potential state audit.
MVDP: The Cons
Three scenarios make it unlikely that filing an MVDP would be more advantageous than filing a traditional VDA.
Your business has tax liabilities in non-NNP member states. The most obvious drawback to filing an application through the MVDP is that not all states participate in the program. Taxpayers would need to file a separate VDA for each state that does not participate in the MVDP, in addition to any application made with the MVDP.
The business does not have the capital to pay fines and unpaid back taxes for several states. For small or otherwise cash-strapped companies, strategically filing VDAs at a staggered rate can be a better option than disclosing all states with tax liabilities at once. This allows for the payment of any taxes, penalties, and interest to occur on a timeline that may help the taxpayer’s financial situation. Additionally, taking a calculated approach can allow for time to negotiate the best agreement with the state, something that is not plausible in a singular application made for multiple states.
The business has tax liabilities for tax types not included as part of the MVDP. The tax types included within the MVDP are not exhaustive. The MVDP allows disclosing transaction/use tax and corporate income tax liabilities in some states. For other tax types such as withholding tax or luxury tax, a separate application must be made directly with the state. Individual VDAs typically do not limit the tax types that can be part of the disclosure process.
It is also worth noting that the combined application provided by the MVDP is not always the most streamlined option. For instance, although the District of Columbia is a member of the NPP, it requires an application to be sent to the D.C. Office of Tax and Revenue in addition to the application filled out with the MVDP. In this case, it may be quicker to simply send a VDA to the D.C. Office of Tax and Revenue directly instead of repeating the application twice.
The decision between filing individual VDAs or using the MVDP’s streamlined application depends on various factors. Ultimately, it is a case-by-case decision.
