To encourage delinquent taxpayers to pay up, from time to time most states offer tax amnesties: That is, if you pay the amount of tax due, plus interest, you won’t be required to pay any penalties. This can result in a substantial savings.
For states without state income tax (Alaska, New Hampshire, Tennessee, Florida, South Dakota, Washington, Nevada, Texas and Wyoming), sales and property tax payments sometimes are allowed through these programs.
Each state tax program has its own eligibility requirements and deadlines. You must pay the amount owed by the deadline to take advantage of the amnesty. Some states require that an amended tax return be filed. Others have special amnesty applications.
Here are the tax amnesty programs in effect now or that will be available later this year:
Arizona will have a state tax amnesty effective Sept. 1, 2011 through Oct. 1, 2011. The amnesty applies to all state taxes except estate taxes and property taxes for the taxable period after Dec. 31, 2003, and before Jan. 1, 2010.
The Arizona Department of Revenue will establish a Tax Recovery Program to administer this amnesty.
California will have an extremely limited amnesty program in effect from Aug. 1, 2011 to October 31, 2011. The California program is limited to taxpayers who need to report additional income from offshore accounts or have engaged in abusive tax avoidance transactions for tax years 2010 and earlier. For more information, visit the California Franchise Tax Board website.
Colorado will have a tax amnesty in effect from Oct. 1, 2011 through Nov. 15, 2011. It can be used by companies and residents who had overdue personal, corporate, partnership and fiduciary income taxes due as of Dec. 31, 2010, but it excludes those with whom the state has already begun the legal process of collecting back taxes.
Under Colorado’s particularly generous amnesty, taxpayers have to pay only one-half of any interest due, without being subject to any other civil or criminal penalties.
The Colorado Department of Revenue will set up an information website within the next couple of months that will include tax forms, the amnesty application (for amended returns), interest rates and additional details about the amnesty program.
If you live in Michigan, you need to act quickly. Its income tax amnesty program will end on June 30, 2011. The Michigan program applies to a variety of personal and business taxes, such as income taxes, sales tax, and fuel taxes for return periods ending on or before Dec. 31, 2009.
There is a catch
There is one catch to taking advantage of any state tax amnesty: you must pay the amount of tax the state says you owe, plus interest, by the amnesty deadline. If you don’t have the money to do this, you can forget about the amnesty.
Try to work out a payment plan with your state tax department instead. Also, you should amend your federal tax returns to reflect the changes in your state return. The Internal Revenue Service does communicate with the state tax departments.
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.