Noncompliance with various state’s sales tax collection and filing obligations can result in shocking sales tax exposures and penalties as a result of either physical nexus or economic nexus thresholds being met. Prior to getting back on course and registering with the applicable states for collection of sales tax, companies may wish to review their past exposures and take steps to potentially reduce or alleviate past liabilities through a voluntary disclosure agreement (VDAs) programs. VDAs are engineered to promote compliance and to benefit taxpayers that realize their prior filing obligations and liabilities that have not been discharged — VDA’s limit
exposure for past tax liabilities and/or penalties/interest.  Defining a sales tax Voluntary Disclosure Agreement (VDA): A sales tax voluntary disclosure agreement (VDA) is a plan offered by many states allowing businesses to come forward and disclose unpaid sales taxes to the state. The agreement is voluntary, meaning that the company must initiate the process and agree to the terms of the VDA to participate. In exchange for voluntary disclosure, the state will usually offer reduced penalties and interest on unpaid taxes as well as offering amnesty from criminal prosecution.

Time to apply for a VDA  

A business should consider applying for a sales tax voluntary disclosure agreement (VDA) if it has not begun collecting and remitting sales taxes to the state in question as required by law. This could be because the business did not realize it was required to collect the taxes, or knowingly did not collect and remit the taxes. Submitting a VDA allows the business to come forward voluntarily and disclose unpaid taxes, thereby avoiding penalties, interest, and potential criminal prosecution. Businesses should apply for a VDA as soon as possible, as the longer the delay, the greater the potential penalties and interest may be. Also, putting off applying may jeopardize the chances of qualifying for the VDA program, as the state may have already initiated an investigation into the business. Not all states have VDA programs, and some have different rules, so it is recommended to seek out a tax professional such as State Tax Consulting that understands the specifics of the state you are operating in, and if it is the right decision for your business currently. State Tax Consulting Services is well versed in all state VDA programs. We
can help clients with sales tax VDA’s nationwide.

VDA Timeline

The processing time of a sales tax voluntary disclosure agreement (VDA) can vary depending on the state where the business is applying, and individual circumstances. Some states have a set procedure for handling VDAs that can be completed relatively quickly, while others take longer to review and approve.  Overall, it can take several weeks to several months for a VDA to be completed. Steps may include submitting the necessary paperwork and documentation, the state reviewing the information and determining if the business qualifies for the VDA program, followed by negotiating the terms of the agreement. The process of VDA submission is not always well defined and can be confusing. Some states have very detailed rules and conditions that need to be met to qualify for a VDA. State Tax Consulting Services can make the procedure much easier than attempting to undertake a VDA alone.