Connecticut Updates Voluntary Disclosure Program

Connecticut released an informational publication to inform taxpayers and tax practitioners about its ongoing Voluntary Disclosure Program. The Program allows and encourages businesses and individuals that are not in compliance with Connecticut tax laws to voluntarily come forward to register or bring their accounts into compliance. A taxpayer can contact the Department of Revenue Services to make arrangements to bring their account into compliance if the taxpayer has:

• failed to pay Connecticut taxes;
• underreported income or gross receipts on which taxes should be paid; or
• not reported transactions subject to Connecticut taxes.

Generally, taxpayers who voluntarily disclose unreported or underreported taxes are offered favorable terms to pay their back taxes. A taxpayer must pay the total taxes and interest due for a period determined by the Department in the Voluntary Disclosure Agreement. Taxpayer benefits include: no penalties imposed, a limited look-back period, and peace of mind from being discovered through Connecticut’s normal investigative or audit procedures.

To participate, taxpayers must submit a written request by mail or email to the Department. To maintain anonymity when sending the request, taxpayers may engage a representative such as a tax preparer, accountant, or attorney.

When reviewing the taxpayer’s written request, the Department will evaluate the taxpayer’s previous presence and activity in the state and compliance with tax laws using the following criteria:

• Nature and magnitude of such presence and activity and circumstances by which nexus may have been established;
• Demonstration of taxpayer exercising reasonable care to determine that such activities and presence were or were not subject to taxation;
• Evidence that taxpayer’s noncompliance was not in willful disregard of Connecticut tax laws;
• Demonstration of good faith by the taxpayer;
• Benefits to the state by entering into a voluntary disclosure agreement with the taxpayer; and
• Whether the taxpayer has collected any taxes.

Once the Department reviews the written request, the taxpayer or taxpayer representative will be notified whether the request was accepted, denied, or requires additional information. New economic nexus laws go/went into effect on December 1, 2018 so there may be a need to register if you meet the state’s threshold for sales and transactions. However, many companies unknowingly hold inventory in many states when they sell through a 3^rd party marketplace facilitator like Amazon.com. If a facilitator has been holding your inventory in a state you most likely have established physical nexus and may want to consider a VDA to avoid costly penalties. (Informational Publication 2018(18), Connecticut Department of Revenue Services, November 6, 2018; modifying and superseding Informational Publication 2010(18), Connecticut Department of Revenue Services, September 28, 2010).