MACPA's State Tax Committee meets with Maryland Comptroller's Office

By Edward H. Ben, CPA
Compliance Division, State Taxation Committee

On Sept. 26, 2000, the MACPA State Tax Committee met with the Compliance Division of the Maryland Comptroller's Office. The purpose of this annual meeting was to provide a forum allowing a free flow of ideas between the state and practitioners as well as to receive updates on new initiatives, legislation and relevant court cases.

A new program scheduled to begin Oct. 1 is managed sales and use tax audits. This program allows an entity to perform the audit itself under agreed upon parameters. This program brings benefits to both the state and the audit target. The state is able to perform more audits without a corresponding increase in auditors. The audit target suffers less operational disruption by having an auditor on-sight for a lengthy period of time. It is also envisioned that the audit will get wrapped up more quickly.

While other states have similar programs, Maryland's features some generous provisions. Namely there will be no penalty or interest added to a liability arising from a managed audit. This is because the resulting liability is not viewed as an assessment by the state. Instead, a supplemental tax return will be filed showing the managed audit liability.

Initially, between 25 and 50 businesses will be selected for managed audits. The businesses must meet certain criteria to be eligible for a managed audit. To qualify for a managed audit, a business must have records that are in good shape as well as basic issues. Once it is established that a business meets these criteria a signed agreement will be entered into with written instructions and a time limit for completion of the audit.

Maryland has now formalized its offer in compromise program. This program is used to resolve tax liabilities for any tax administered by the Comptroller's Office when the taxpayer is unable to pay in full and all other efforts to resolve the liability have been unsuccessful. This program is not an appeal of the taxpayer's liability. Instead, under the program, the Comptroller's Office reviews the taxpayer's available resources, considers the resources in light of the taxpayer's circumstances, and arrives at an equitable resolution of the taxpayer's liability by considering a reduction or abatement of the amount due.

Before you can apply to this program certain requirements must be met as follows:

You have incurred a delinquent tax liability that has resulted in an assessment.
You have exhausted all other avenues of administrative appeal.
Two years must have passed since you became liable for the tax.
You must be current with respect to all returns filed or required to be filed.
You must not be currently involved in an open bankruptcy proceeding.
You are unlikely to be able to make payment in full any time in the foreseeable future due to your financial situation.

All decisions under the Offer in Compromise program are final and cannot be appealed. For this reason you should carefully consider the facts and arguments you submit with the original offer.

Last year was the first year Maryland participated in the Federal Offset Program. This program allows the state to seize federal refunds and use them against unpaid state tax liabilities. Last year, there were approximately 7,200 offsets totaling approximately $4 million. This year, 35,000 offsets have been certified under the rules of the program. In order to be certified, the liability must meet the following criteria:

less than 10 years old;
income tax liability only;
taxpayer must have a Maryland address;
a 60-day letter must be sent to the taxpayer.

Maryland is looking to expand this program by entering into reciprocal agreements with other states such as Connecticut, Delaware and the District of Columbia.

Maryland will now allow tax liabilities to be paid by credit card. Credit cards can be used for estimated payments as well as balance due payments. A 2.5 percent service charge will be charged to the taxpayer. The state points out that prompt use of a credit card could save the taxpayer money when one considers that the interest rate on unpaid liabilities is 13 percent or that there is a 25 percent penalty on second notices relating to revised assessments.

The Compliance Division has initiated a Customs Project relating to sales and use tax. The state is now receiving a download of airport customs declarations from the Customs Department. The state reviews this download for purchases of big-ticket items such as jewelry or artwork purchased abroad and brought into the state for use. Use tax assessments are then mailed to the taxpayer. The state noted that they snared a taxpayer bringing one item into the state that netted the state $114,000. Look for this program to be expanded to cruise ships docking at the port.

The state also reviewed that status of various court cases. Most notable of these were the SYL, MCIIT and Crown Cork and Seal cases. The state noted that arguments for these cases will be heard in January 2001 in the Court of Appeals.

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