Published August 6, 2025
What Are Sales Tax Voluntary Disclosure Agreements? (VDAs)
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Updated - Originally published February 5, 2025
Unpaid sales tax can put your business at risk of audits, penalties, and even criminal charges. If you’ve discovered you’re out of sales tax compliance, don’t worry. There’s a way to help with past mistakes: a Voluntary Disclosure Agreement (VDA).
This state-run program gives your business the chance to come clean about unpaid tax liabilities while reducing penalties and limiting exposure. Below I’ll explain how sales tax VDAs work, who qualifies, and why they’re a powerful tool for staying compliant.
A voluntary disclosure agreement (VDA), also called a volunteer disclosure program (VDP), is an agreement between your company and a state in which your company agrees to come forward to pay its tax obligation in exchange for some concessions. These concessions can include reduced penalties or a limit on the scope of years under consideration for tax liability.
Put simply, a VDA incentivizes you to come clean about your taxes and have a fresh start with the state. It allows you to disclose outstanding tax liabilities and avoid the penalties that would come if the issues were discovered by the state during an audit. Each state has its own VDA process, so businesses that are out of compliance or behind on their sales tax in multiple states have to go through the process in every state where they are out of compliance.
Why would states allow your business to come clean about your taxes?
When businesses aren’t compliant or remitting sales properly, it can lead to a significant drop in sales tax revenue for states—money that funds crucial government programs like infrastructure, education, and healthcare. In many states, sales tax funds account for nearly 15% of the state's budget, so missing that revenue can seriously limit state programs and funding. To get companies back on track and help them become compliant, states allow businesses to limit their outstanding liability through a VDA.
As the name implies, a VDA is voluntary. A VDA is a proactive approach to minimize your financial and legal risks of past non-compliance. Companies that voluntarily disclose past tax issues and liabilities can avoid more severe penalties and potential legal consequences.
The terms VDA and VDP are often used interchangeably. Some states call the process a voluntary disclosure agreement, while others consider it a voluntary disclosure program. In both instances, the state runs the program, and each VDA or VDP is unique to the state.
The voluntary disclosure program is the overall program and offering from the state, and the voluntary disclosure agreement is the actual document. The agreement is a signed contract between the state and your business, while the program is the larger set of requirements your business must follow to become compliant.
The first step in applying for a VDA is to complete a form with basic information. In most states, companies can anonymously start the VDA negotiation with a state or through a third-party tax expert. That means you have options about how to approach the process.
A DIY approach to a VDA can work for companies with smaller liabilities or those applying for a VDA in one or two states. However, I’d recommend working with a sales tax professional for more complex sales tax issues, if VDAs are needed in many states, or if negotiations need to take place.
Regardless of your approach, it’s important to note that applying for a VDA doesn’t guarantee acceptance into the program. Before negotiations can start and the state tax department considers your incentives, the group will determine if the department has previously contacted your company or if you were willfully not following sales tax rules. In that case, the VDA is void.
Most states only allow companies to enter a VDA once. That means you can’t use a VDA to get a clean slate, go on not paying sales tax, and then clear it again with another VDA in a few years.
A VDA allows your business to disclose unpaid sales tax and negotiate with the state’s tax agency to potentially avoid penalties and interest. By entering into a VDA, your company can potentially erase your past sales tax liabilities.
Applying for a VDA allows you to negotiate with a state’s tax department and discuss potential incentives with the state, such as erasing or limiting your tax liability. After the VDA is complete and signed by the company and the state, the company typically is considered compliant with its sales tax (essentially erasing any history of non-compliance) and in good standing with the state.
One of the most compelling reasons to pursue a VDA is the opportunity to significantly reduce or eliminate penalties and interest. In a typical audit scenario, your business could face penalties ranging from 10% to 30%+ of the unpaid tax amount, plus years of compounded interest. A VDA can minimize those costs—sometimes wiping out penalties altogether and reducing interest charges. That translates to real savings and a cleaner financial slate. For businesses that have unknowingly failed to collect or remit sales tax in one or more states, a VDA can be the most cost-effective way to resolve the issue without triggering a financial crisis.
Another major advantage of a VDA is the limited lookback period—often capped at three to four years (depending on the state). Without a VDA, states may assess liability for every year a business was noncompliant, which could go back seven to ten years or more. That expanded window can dramatically increase tax owed, interest, and exposure. With a VDA in place, the state agrees to only look back a set number of years, giving businesses certainty about their liability and a clear path forward. This makes VDAs particularly valuable for companies that triggered nexus in the past but never registered or filed.
A VDA is most useful when your business is behind on remitting sales tax or out of compliance with local sales tax regulations. Any company with a sales tax registration in that state can apply for a VDA. However, it's important to note that your company can't purposefully stay out of compliance with sales tax then apply for a VDA. In many cases, companies enter a VDA if they were unsure about changing sales tax regulations, didn't realize they had nexus in a state, or miscalculated sales tax—basically, any accidental sales tax non-compliance.
However, a VDA isn't always the best option. There are some things to consider when applying for a VDA to ensure it’s the best option for your company:
A VDA allows your business to remedy your past liability and move forward with a clean sales tax slate. By registering for a sales tax permit and doing business in the state, you agree to collect and remit sales tax appropriately. If you choose not to remedy your past liability through a VDA or by paying back what you owe, you could face serious consequences.
A state tax agency can conduct a sales tax audit if it suspects your business isn’t accurately reporting sales tax or when the sales tax return your company files with the state doesn’t match what it reports to the IRS. These audits can be time-consuming and pull your business leaders’ valuable attention away from other activities.
If the state determines that your business didn’t collect sales tax from customers or remit the proper amount, you’ll likely face consequences, including the following:
The bottom line is this: all companies need to properly collect and pay sales tax, either through the traditional methods or by remedying past liabilities with a VDA. It’s part of responsible and ethical business ownership.
Ready to engage in a VDA? Set up a free call to learn how we can support your business.
Our dedicated team at The Sales Tax People specializes in providing comprehensive Sales Tax Registration and VDP services to streamline compliance processes and minimize potential risks. With our in-depth knowledge and strategic approach, we help you navigate the intricate landscape of sales tax regulations, ensuring compliance and peace of mind.
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