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PA Voluntary Compliance Program

PA Tax Update: Special 90-day voluntary compliance for businesses with PA inventory or property – excludes applicable PA taxes owed prior to January 1, 2019

Announcement of Voluntary Compliance Program from March 2, 2021 to May 8, 2021
On March 2, 2021, the Pennsylvania Department of Revenue announced a new 90-day Voluntary Compliance Program for any business that has inventory or stores property in Pennsylvania, but has not yet registered to collect and pay Pennsylvania taxes. The program runs through May 8, 2021 and offers a limited lookback period and penalty relief when the business becomes compliant.

What businesses and taxes are affected?
Generally, this Voluntary Compliance Program applies to businesses outside Pennsylvania that either have inventory or stores property in the state. However, it possible that current PA businesses could be affected if the business is not currently registered for tax purposes in Pennsylvania.

The program announcement does not specify which taxes are affected; however, the program is listed under the Department of Revenue’s website section for Tax Obligations for Online Retailers, which specifically refers to sales and use tax, personal income tax, corporate net income tax, and other taxes such as cigarette taxes and fuels taxes.

How to participate in the program / What penalties will be abated
To participate in the Voluntary Compliance Program or to determine if the business has tax “nexus” in Pennsylvania, a business must complete the online Physical Presence Business Activity Questionnaire BAQ or complete the paper version.

Business taxpayers that choose to participate in the program will not be liable for taxes owned prior to January 1, 2019, and will also be given penalty relief for any non-compliance for past due returns that were not filed and taxes that were not paid.

The PA Department of Revenue will review the situation for each business that submits the Physical Presence BAQ and will contact the business to discuss how to become compliant. Once the business is registered, files any tax returns that were due, and paid the taxes, all penalties from non-compliance will be abated if the business remains in compliance.

Final considerations
The limited look back period of only taxes due on or after January 1, 2019 included in this “special” Voluntary Compliance Program may be attractive since it is different from the regular current PA Voluntary Disclosure Agreement (“VDA”) program which requires payment of taxes for the current and five previous years. Although the program appears to be targeted to retailers, it may be inferred from the announcement that it applies to “any business that has inventory or stores property in Pennsylvania but is not registered to collect pay Pennsylvania taxes” and could also apply to income taxes.

Therefore, this special Voluntary Compliance Program may be worth considering for businesses with activity in Pennsylvania that seek to get into compliance with PA taxes. However, one other consideration is the lack of anonymity as a result of the requirement to file the business activity questionnaire. The regular VDA program has no such requirement and participants can be anonymous.

Please contact your Herbein tax adviser if you have questions or think this program is something you should consider at info@herbein.com.

Article contributed by Barry D. Groebel