How Does an International Business Do a US Sales Tax Voluntary Disclosure Agreement?
International businesses that failed to register for US sales tax can often use a voluntary disclosure agreement (VDA) to reduce penalties, limit historical liability, and become compliant before states initiate enforcement action.
What Is a Voluntary Disclosure Agreement (VDA)?
A voluntary disclosure agreement (VDA) is a formal agreement between a business and a state tax authority that allows the business to voluntarily come forward and resolve historical sales tax liabilities.
In exchange for disclosure and future compliance, states often:
- Reduce penalties
- Limit lookback periods
- Waive certain enforcement actions
VDAs are commonly used by businesses that discover they should have been registered earlier.
The most important point to remember is that international businesses can use voluntary disclosure agreements to fix past US sales tax exposure before states initiate audits, often reducing penalties and limiting historical liability.
Why International Businesses Need VDAs
Many international businesses selling into the US unknowingly create sales tax nexus without realising it.
This is especially common for:
- Shopify sellers
- Amazon FBA businesses
- Ecommerce brands shipping into multiple US states
Foreign businesses often assume:
- US sales tax only applies to US companies
- Marketplace collection removes all obligations
- Physical presence is required
In reality economic nexus rules apply to international sellers too.
How International Businesses Create US Sales Tax Nexus
1. Economic Nexus
Most states require registration once sales exceed thresholds such as:
- $100,000 in revenue
- Or transaction thresholds in certain states
This applies even if the business has:
- No US office
- No US employees
- No US company entity
2. Physical Nexus
International businesses commonly create physical nexus through:
- Amazon FBA inventory
- Third-party logistics providers (3PLs)
- Warehousing in the US
Inventory stored in a state can create immediate sales tax obligations.
Why VDAs Matter for International Businesses
Without a VDA, states may assess years of back sales tax, penalties, and interest.
This can become expensive because:
- Sales tax may never have been collected from customers
- The business may need to pay the liability itself
A VDA can help:
- Reduce exposure
- Limit audit risk
- Create a structured compliance path
What Benefits Can a VDA Provide?
1. Limited Lookback Periods
Instead of reviewing all historical activity. States often limit exposure to 3–4 years, which can significantly reduce liability.
2. Penalty Relief
Many states reduce or waive penalties completely
3. Reduced Audit Risk
Voluntarily coming forward is generally viewed more favourably than being discovered during enforcement.
4. Faster Compliance Resolution
VDAs create:
- A formal process
- A clear route to compliance
Step-by-Step: How an International Business Completes a VDA
Step 1: Assess Your Exposure
Review:
- Sales by state
- Nexus triggers
- Inventory locations
- Historical activity
This determines where liabilities may exist.
Step 2: Prioritise States
Not all states carry equal risk.
Factors include:
- Revenue levels
- Nexus strength
- State enforcement aggressiveness
Step 3: Confirm Eligibility
A business may not qualify if:
- A state already initiated contact
- An audit has begun
- Registration already exists in that state
Timing is critical.
Step 4: Prepare Anonymous Disclosure (Where Allowed)
Many states allow:
- Anonymous VDA applications through a representative
This allows:
- Negotiation before identity disclosure
Step 5: Negotiate Terms
This may include:
- Lookback periods
- Penalty waivers
- Filing requirements
Step 6: Register and File
After agreement:
- The business registers for sales tax
- Begins collecting tax
- Files returns going forward
Step 7: Maintain Ongoing Compliance
Once registered:
- Filing obligations continue
- Nexus must still be monitored
Which States Allow Voluntary Disclosure Agreements?
Most US states offer some form of voluntary disclosure agreement program.
However:
- Rules vary significantly
- Eligibility differs by state
- Some states are more aggressive than others
International businesses often require a state-by-state strategy.
Worked Examples
Example 1: UK Shopify Seller
- Selling into multiple US states
- Exceeded economic nexus thresholds
- Never registered
Uses VDA process to:
- Limit historical exposure
- Register correctly
- Begin compliance
Example 2: European Amazon FBA Business
- Inventory stored in multiple US warehouses
- No previous sales tax filings
Uses VDAs in multiple states:
- Reduces penalties
- Resolves past liabilities
Example 3: Australian Ecommerce Brand
- Rapid US growth
- Discovers nexus across several states
Uses VDA strategy before:
- State enforcement begins
Common Mistakes International Businesses Make
- Assuming foreign businesses are exempt from US sales tax
- Waiting until contacted by a state
- Ignoring Amazon FBA inventory nexus
- Registering incorrectly before assessing exposure
- Assuming marketplace collection removes all liability
These mistakes can significantly increase historical exposure.
FAQs
Can non-US businesses use VDAs?
Yes, foreign businesses commonly use voluntary disclosure agreements to resolve US sales tax exposure.
Do all states offer VDAs?
Most states offer some form of voluntary disclosure program.
Can penalties be waived?
Often yes, depending on the state and circumstances.
What if a state already contacted me?
You may lose eligibility for voluntary disclosure protections.
Do Amazon FBA sellers need VDAs?
Possibly, inventory storage often creates nexus and historical exposure.
Final Thoughts
As US ecommerce enforcement increases, international businesses are becoming more exposed to multi-state sales tax obligations.
The key takeaway is that a voluntary disclosure agreement can provide international businesses with a structured way to reduce historical US sales tax liabilities and become compliant before enforcement escalates.
For many foreign sellers, acting early can:
- Reduce penalties
- Limit financial exposure
- Create long-term compliance stability
If your international business may have US sales tax exposure, RJM Tax Exemption can help assess your nexus risk, manage voluntary disclosure agreements, and guide you through multi-state compliance.
