Due to the economic shutdowns during COVID-19 over the last several months, many states have experienced significant shortfalls in sales tax collection. States like California expect shortfalls of around $32 billion in 2021 alone. Other states like New York and Colorado are anticipating revenue losses of $12 billion and $3 billion, respectively. As a result of large revenue losses, the state and local tax community is anticipating sales tax amnesty programs to incentivize businesses to pay delinquent sales and use tax without penalties and interest.
In general, sales tax amnesty is a limited opportunity for taxpayers to come forward and pay liabilities due by a certain date. Sales tax amnesty programs offer the reduction or elimination of penalties and interest. While many taxpayers seek compliance with recent Wayfair economic nexus laws, amnesty might be a good opportunity to remedy past exposure and avoid penalties and interest for prior noncompliance.
Most recently, Nevada announced that it will allow for a 90-day amnesty period for sales, use, and other taxes. The Nevada sales tax program requires that the tax at issue be due by July 20, 2020. If a taxpayer has an outstanding liability, it can enter into the program and avoid penalty and interest by paying the liability in full. Unfortunately for those that entered into a compromise agreement, settlement agreement, and have been audited without being issued a notice of deficiency, are not eligible for the program.
Following its announcement, Nevada joins North Carolina and Washington with amnesty programs. As states continue to lose sales tax revenue due to the economic effects of Covid-19, it can be expected that many more states will enact similar programs. Amnesty programs are an excellent opportunity for businesses who have been stalling payment on prior sales tax liabilities. As state sales tax professionals, we will closely monitor the evolving situation and keep your business apprise as the states continue to respond.