If you’ve discovered uncollected or unremitted sales tax—whether from economic nexus, product taxability mistakes, or system errors—this guide explains how to use a Voluntary Disclosure Agreement (VDA) to limit past exposure and get compliant with sales tax. If you would rather have someone handle it, see our sales tax VDA services.
1) Understand what a VDA is—and why it helps
A VDA is a legal agreement with a state that lets a business voluntarily disclose past sales/use tax liabilities. In return, states typically:
- Limit the lookback period (often 3–4 years, varies by state), and
- Waive penalties (interest is usually still due).
Why it matters: If exposure spans six years, a VDA can cap the “catch-up” period to the lookback window instead of the full six.
2) Act before the state contacts you
VDA eligibility is generally lost once a state initiates contact (e.g., audit notice, nexus questionnaire).
Action: If you suspect liability on your sales tax or other items, start evaluating VDA options immediately—don’t wait for a notice.
3) Verify the lookback period for each state
Lookback periods and interest/penalty rules differ by jurisdiction.
Action: Create a state-by-state matrix noting lookback, interest, penalty waiver rules, and documentation required.
4) Consider multi-state exposure (and the MTC option)
Selling into multiple states may mean multiple VDAs. The Multi-State Tax Commission (MTC) program can streamline voluntary disclosures across participating states.
Action: Map historical sales by ship-to state and prioritize states by exposure/risk.
5) Use anonymous filing where available
Many states allow representatives (e.g., CPA/consultant) to negotiate terms without initially revealing your identity.
Action: If you’re uncertain about proceeding, start anonymously to protect eligibility while you finalize exposure and strategy. Our voluntary disclosure agreement services cover this stage on your behalf.
6) Assemble complete, audit-ready records
Incomplete or inaccurate disclosures of sales tax can void a VDA. What you’ll typically need is as follows:
- Gross sales and taxable sales by ship-to address (state and local),
- Tax collected vs. tax due (by period),
- Exemption certificates (validated and on file), and
- A ballpark liability estimate over the lookback.
Action: Before applying, confirm you can produce periodized data and local allocations; many states require them within 60–90 days after approval.
7) Budget for payment—and ask about payment plans up front
Not all states offer payment plans for VDA liabilities; some require a lump-sum payment. When available, terms vary and often must be requested with the initial application.
Action: Build a cash-flow plan based on conservative assumptions (no plan, lump sum), and request any payment plan in the application when the state allows it.
8) Secure go-forward compliance on Day 1
VDAs require you to register and remain compliant prospectively.
Action:
- Register for sales and use tax (effective date per agreement),
- Configure product taxability and correct rate sourcing,
- Implement filing cadence and reminders,
- Centralize exemption certificates, and
- Schedule periodic compliance reviews or automation.
When a VDA might not be necessary
If exposure is only 6–12 months in a single state, it can be more efficient to register with a backdated start date, file the missing returns, and request a penalty waiver—especially if professional sales tax VDA fees would exceed the benefit. Evaluate both paths.
Pre-filing checklist
- Exposure mapped by state and period (including locals)
- Lookback, interest, waiver rules confirmed
- Data by ship-to address exportable for all periods
- Exemption certificates validated or cured
- Payment plan policy known; cash ready
- Go-forward systems configured (rates, taxability, filings)
Final thoughts (and how we can help)
VDAs turn a messy past into a clean slate—if you move before the state calls and your disclosure is complete. If you’re unsure whether you need a VDA or which states to prioritize, we’ll walk you through a quick exposure assessment and options.
RJM Tax Exemption has handled many VDAs across industries and can file anonymously, coordinate multi-state disclosures, and set up your go-forward compliance. Find out more about our VDA services for ecommerce sellers, or get in touch and see how our team can help.
FAQs
Q: Will a VDA erase interest?
A: Penalties are commonly waived; however, interest from sales tax or other items is usually still due.
Q: Can I do this myself?
A: Possibly for simple, single-state situations. For multi-state exposure, locals, or messy data, professional help can prevent voided agreements and audits.
Q: How long does the process take?
A: Timelines vary by state and your data readiness; plan for document turnaround windows of 60–90 days post-approval.
