What is the Minnesota VDP?
The Minnesota Voluntary Disclosure Program (VDP) is designed to allow businesses to attain compliance with state withholding tax laws. The program permits a company to voluntarily correct the issue, pay outstanding taxes due and generally receive a waiver of all or some penalties. Taxes included in the VDP include corporate franchise, S-corporation, withholding, sales and use and partnership taxes, among others.
Unfortunately, not all businesses will qualify to participate. To enter into a voluntary disclosure agreement, a business must meet the following qualifications:
- A business must not currently be under review for Minnesota tax obligations by the Minnesota Department of Revenue or other state agencies.
- There must not have been contact by the Minnesota Department of Revenue regarding a compliance or audit issue (i.e. a request to complete a nexus survey).
- A business must not be engaged in evasion or misrepresentation in the reporting of tax liabilities.
- They must not currently be registered with the state and be willing to register for a specific type of Minnesota tax account.
Note: The state offers companies who do not qualify for the VDP access to an Alternative Compliance Program designed to provide limited benefits for voluntarily disclosing unpaid tax liabilities.
What are the Benefits of Participating?
There are several benefits to participating in the program, including the possible waiver of some or all penalties depending on your specific situation. There is also a limited lookback period (typically three years for most taxes), which is much less than the unlimited lookback period that applies if the state uncovers the unpaid liabilities without voluntary disclosure by the offending company. Finally, taxpayers can remain completely anonymous through the review period, allowing them to openly communicate with the state on key issues.
If your company qualifies for the program, there are several responsibilities that must be met. The business must:
- Agree to file all returns or abbreviated spreadsheets as specified in the agreement.
- File subsequent returns in a timely manner as outlined in the agreement.
- Pay all taxes due, including any penalties and accrued interest, as specified in the agreement.
- Make all books and other financial records available for audit to permit validation of key financial information at the request of the Minnesota Department of Revenue.
The Voluntary Disclosure Program offers the opportunity for businesses to attain compliance with Minnesota tax laws. Before sharing any information with the state, it is essential to work with a qualified professional who can review your situation and offer the proper guidance. If you have questions about the program or need assistance with a nexus determination review, Smith Schafer can help.