Voluntary disclosure agreements and state tax Amnesty programs allow a tax non-filer with potential tax liability to negotiate a settlement agreement regarding the prior period tax liabilities on favorable terms.  The programs allow a taxpayer to come into compliance in one state or multiple states.  Generally, the terms include a specified look-back period and waiver of penalties as well as "forgiving" all tax prior to the look-back period.  The length of the look-back period is determined by individual state policy, but generally is three or four years.  Although the jurisdiction cannot alter a look-back period, they will negotiate to tailor an agreement to an applicant's needs. Taxes included in the programs are income, franchise, withholding, sales and use and possibly other local taxes.  Why enter into an agreement?  The potential for the state taxing authority to uncover unpaid taxes looms constantly over a taxpayer and this is an opportunity to stop the clock from ticking as jurisdictions can go back years to collect unpaid taxes, which includes interest and penalties.

What is the difference between a voluntary disclosure agreement and a state tax amnesty program? Voluntary disclosure agreements allow an individual taxpayer to possibly tailor an agreement with the taxing authority and usually are always available often set by statutory law. A state tax amnesty program is for a specified time frame, possibly for a specific tax, and the rules are generic and apply for all taxpayers who submit to the program.  Looking at both alternatives is suggested to determine which method will save the most tax dollars and best suit the taxpayer.

Currently, the following voluntary disclosure or tax amnesty programs are:

�         New Jersey-submission until January 15, 2013

�         Ohio-submission until May 1, 2013

The Governor has signed legislation to repeal the personal property tax.  While the Governor has signed the legislation, the ultimate repeal of the personal property tax will be in the hands of the voters within the State of Michigan.  One of the bills signed by the Governor must be approved by Michigan voters in a general election in 2014.  If the majority of the voters approve the legislation, then the property tax repeal will begin.  If the voters do not approve the legislation, then there is no property tax repeal under this legislation signed by the Governor. 

The bills aim at eliminating the personal property tax for eligible manufacturing personal property and certain commercial personal property and providing a partial reimbursement of the revenue lost to local units of government.  The new legislation phases the tax over a 10 year period starting December 31, 2013.

The legislation provides an exemption, beginning December 31, 2013, for commercial and industrial personal property if the combined taxable value of all such property owned by the taxpayer were less than $40,000 in the local tax collecting unit.  Commercial and industrial personal property of a business where the taxable value of the property in a local unit was $40,000 or more would not be exempt.

The package of bills contain an exemption from personal property tax, beginning December 31, 2015, for "qualified previously existing personal property."  That term refers to eligible manufacturing property that has been subject to or exempt from the collection of taxes for the immediately preceding 10 years, or would have been if located in the state during that period.

Another exemption, beginning December 31, 2015, is for "qualified new personal property".  This refers to eligible manufacturing property that has met all of the following conditions: 1) purchased after December 31, 2011; 2) was not before January 1, 2013, subject to or exempt from taxation and was not in use or placed in service in the state; and 3) before January 1, 2013, was not in use or placed in service outside the state.

The repeal causes concern for Michigan cities which rely on the tax for a substantial portion of their revenues, particularly those with a large industrial base. Certain localities would receive a partial reimbursement of personal property tax revenues lost which would be paid out of a portion of the Use Tax revenues, to be known as the "Metropolitan Areas Component Tax."  This applies only to a municipality that has experienced a reduction in taxable value of over 2.5% as a result of the personal property tax exemptions.  That tax would be levied by a newly created Michigan Metropolitan Areas Metropolitan Authority. This bill is subject to a statewide vote to be held in August 2014, which will determine the fate of the overall property tax repeal.  If approved by voters, the law would take effect January 1, 2015.