Tier Penalty What is tiered penalty?

1. Tier Penalty • What is tiered penalty? • -- Tiered penalty was implemented in 2002. The purpose was to help apply a more • fair and consistent penalty and compromise structure. • What taxes qualify? • -- Tiered penalty covers only Sales and Use tax and other taxes imposed by Chapter 212 • What is a strike? • -- We use the term strike to indicate a non-compliant event on the part of the taxpayer. • What is a non-compliant event? • --When…Sales and Use tax return or payments are late. • -- When…Sales and Use tax payments are not remitted in full • -- When…Sales and Use tax return is incomplete • -- When…Sales and Use tax return is delinquent • -- When…Sales and Use tax liability or delinquency is outstanding and is • 31 days old or older.

2. Tiered penalty structure for filing frequency • -- Only applies to Monthly and Quarterly Sales tax filers. • -- Monthly filers receive two forgiveness strikes before being sent a bill that • requires extraordinary circumstances to compromise • -- Quarterly filers receive only one forgiveness strike before being sent a bill that • requires extraordinary circumstances to compromise • Tiered penalty is on a 12 month basis, not calendar year • -- As an account progresses over time and the first non-compliant event “drops • off” the tiered penalty history (i.e. is older than 12 months), the second and • third non-compliant events now count as two strikes. • When is a taxpayer not eligible for an “automatic” compromise • -- One or more non-compliant events in the previous 12 months for Quarterly • filers • -- Two or more non-compliant events in the previous 12 months for Monthly • filers

3. Informal Conferences/Compromises • Definition • -- Taxpayers informal appeal to the Department for dispute resolution • When should an informal conference be requested • -- When there are circumstances and additional evidence to show just • cause • Voluntary Disclosure • -- When a taxpayer voluntarily self-discloses a liability for tax to the • department, the department may settle and compromise the liabilities • due under voluntary self-disclosure. • -- A voluntary self-disclosure does not occur if the department has • contacted or informed the taxpayer of any indebtedness

4. Accrual of Penalties and Interest on deficiencies • -- When do penalties and interest start to accrue • -- If notice and demand is made for the payment of any amount due and if • the amount is paid within 30 days after the date of the billing, no additional • penalties or interest on the amount paid shall be imposed. • -- Administrative collection Fee • -- An administrative collection processing fee shall be imposed to offset payment • processing and administrative cost incurred by the state due to late payment • of a collection event. • -- A collection event means when a taxpayer fails to: Timely file a complete return, • timely pay the full amount of tax reported on a return. • -- The department shall collect the fee from a taxpayer who fails to pay the full • amount of tax, penalties, and interest due within 90 days following initial • notification of the collection event. • -- The fee is equal to 10 percent of the total amount of tax, penalty and interest • which remains unpaid after 90 days, or $10 for each collection event, • whichever is greater. This fee shall be imposed in addition to the taxes, fees, • penalties, and interest prescribed by law.

5. Closing Agreements • Purpose • -- A closing agreement is required to compromise a tax, penalty or interest • assessment, if the amount compromised is greater than $30,000. • Procedures • -- A written closing agreement, signed by the taxpayer and the • Department, is used to settle the taxpayer’s liability for tax, interest, • and/or penalty for specific periods. The execution of a closing agreement • constitutes a written agreement to the liability. It also takes away the • taxpayer’s protest and appeal rights on the remaining balance.