Businesses that discover nexus and sales tax collection obligations in Texas face a challenging decision. Ignoring their sales tax obligations in Texas risks future audit, collection proceedings, and possible criminal charges. A business may alternatively proceed to register for a sales tax permit and repay the full amount owed on their tax liability.
However, a third option may be available to eligible businesses by applying to participate in the Texas Voluntary Disclosure Program. This program allows businesses to potentially reduce their sales tax liability and establish a clean slate for their compliance in Texas moving forward. The voluntary disclosure process can be tricky with strict rules and requirements that businesses must follow to enjoy the benefits of the program. Our Texas sales tax professionals provide guidance to business owners and their accounting teams through the Voluntary Disclosure Services at Sales Tax Helper.
What Is the Texas Voluntary Disclosure Program and How Does It Benefit Businesses?
The Texas Voluntary Disclosure Program is an initiative for the Comptroller’s Office to incentivize the reporting and payment of previously unpaid sales tax. Businesses can anonymously disclose its unreported sales tax in Texas and sales tax nexus liability.
The benefits of the program include a waiver of statutory penalties and interest in addition to a limited lookback period of four years from the date the business contacts the Comptroller’s Office. For example, a business with 10 years of potential sales tax liability in Texas may only need to report and pay taxes on the four most recent years. The businesses that benefit the most from participation in the Texas Voluntary Disclosure Program will be those that either have significant penalties and interest accrued from their liability or that have a lengthy history of unreported sales tax.
Note: Texas does not allow the waiver of interest or provide a limited lookback for businesses with tax collected but not remitted. If your business has previously collected sales tax but not remitted it to the state, consult with our Texas sales tax professionals about available options for resolving this issue.
The Eligibility Requirements and Process to Participate in a Voluntary Disclosure Agreement in Texas
The Texas Comptroller’s Office has the general discretion to allow a business to participate in its Voluntary Disclosure Program. However, a business must also meet several eligibility requirements to qualify for participation, which includes the following items:
- The business must have a sales tax liability under the administration of the Comptroller’s Office.
- The Comptroller’s Office cannot have previously contacted the business, either verbally or in writing, about the sales tax liability.
- The business has not received a notice of an audit or examination.
Businesses that meet these conditions can anonymously contact the Business Activity Research Team (BART) at the Comptroller’s Office to request a Texas voluntary disclosure agreement with the Texas Comptroller’s Office. It’s important to not use company names, emails, or other traceable communication methods during the initial contact.
An examiner from BART will request information about the disclosure, including general details about the business, its sales tax liability, and confirmation about its eligibility. If accepted, the BART examiner will send an executed voluntary disclosure agreement with additional reporting forms for the business to sign and complete. The business then has 60 days under the terms of the agreement to register for a sales tax permit, file sales tax returns, and remit payment of the remaining owed sales tax. Compliance with the terms of the voluntary disclosure agreement is critical to avoid further complication or liability. A default or breach of the agreement can result in the Comptroller’s Office conducting a full audit of the business and pursuing all disclosed taxes, including previously waived penalties and interest.