Voluntary Disclosure Agreements (VDAs)

Discovering that your business has unaddressed sales tax liability in one or more states is uncomfortable. The question that follows -- what do you do about it -- has a clear answer in most cases: you come forward proactively through a voluntary disclosure agreement before the state finds you first.

The difference in outcome between those two paths is significant.

What a VDA is

A voluntary disclosure agreement is a formal, confidential agreement between your business and a state that allows you to come forward and resolve past liability on defined terms. In exchange for disclosing proactively, states typically offer a limited lookback period, often three to four years, and a full or substantial waiver of penalties.

Most states also allow the initial disclosure to be submitted anonymously, through a representative, so you can evaluate the terms before formally identifying your business.

Why coming forward is almost always the better path

If a state finds you before you come forward, the terms change entirely. Lookback periods become unlimited, going back to the first date you had nexus in that state. Penalties are assessed in full. The negotiating dynamic shifts from a business proactively resolving a liability to a state pursuing one.

The math is rarely close. A three-year lookback with penalties waived versus an unlimited lookback with full penalties is a material difference for most businesses, and the only variable that determines which path you're on is whether you move first.

What the process involves

TSTP evaluates your situation state by state to identify which states are viable VDA candidates, what the likely liability range looks like in each, and what the terms typically look like for that state's program.

From there we prepare and submit the disclosure applications, often anonymously to start, and negotiate the terms of the agreement with each state. We calculate the liability, work through the documentation requirements, and manage the process through to resolution.

The goal is to close the exposure in each state as cleanly and cost-effectively as possible.

Who this applies to

VDAs come up in several situations. Businesses that have grown into new states and discovered during a nexus review that they have unregistered exposure. Businesses going through an acquisition where due diligence surfaced liability that needs to be resolved before or after close. Businesses whose sales tax software was running but hadn't been configured to track all of their obligations, leaving gaps that accumulated over time.

In each case the underlying situation is the same: past liability exists, it hasn't been addressed, and the question is how to resolve it on the best available terms.

Find out if a VDA is the right move for your situation.

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