Voluntary Disclosure Agreement (VDA) for US Sales Tax

You sold into a state for years without collecting its sales tax. Maybe you passed its economic nexus threshold without noticing, put inventory in an Amazon warehouse there, or hired someone who works from home in that state. Now you owe tax you never charged your customers.

A voluntary disclosure agreement (VDA) is how most US businesses fix this. You come forward before the state finds you. In return, the state limits how far back it will go and usually drops the penalties.

TL;DR

• What it is: a deal with a state’s tax department to pay back sales tax for a limited number of years, usually three or four, instead of every year since you first had nexus.
• What you get: penalties are usually waived, older years are forgiven, and you can apply anonymously.
• What you still pay: the tax for the lookback years, plus interest. Tax you collected from customers but never paid to the state is usually owed in full.
• The catch: it only works before the state contacts you. After a nexus questionnaire or audit notice, the option is usually gone.
• When it’s worth it: you’ve had nexus for more than a year or two and owe more than a few thousand dollars in that state.

	Register and file back returns	Voluntary disclosure agreement	Wait for the state to find you
How many years you pay	Every year since nexus began	Usually 3–4 years	Every year since nexus began
Penalties	Usually charged	Usually waived	Charged, often the maximum
Interest	Owed	Owed (a few states reduce it)	Owed
Can you stay anonymous?	No	Yes, until you sign	No
Who’s in control	You	You	The state

Why registering isn’t enough

Registering for a sales tax permit only fixes the future. It doesn’t settle the years you sold without collecting, and it tells the state you exist. A state can then ask when you first had nexus, and you’ll owe tax, interest and penalties for every year since.

There’s usually no time limit on that either. The statute of limitations for sales tax starts when you file a return. If you never filed in a state, it never started, so a state can go back to the year you first crossed its threshold. For most online sellers, that’s 2018 or 2019, when states brought in economic nexus after the Wayfair ruling.

What a VDA gets you

• A shorter lookback. Most states cap it at three or four years. Earlier years are forgiven.
• No penalties. Late-filing and late-payment penalties are usually waived. They can add up to 25% or more of the tax.
• Anonymity. A representative applies without naming you. If the state’s terms aren’t acceptable, you can walk away and the state still doesn’t know who you are.
• Certainty. You sign an agreement with a fixed amount and a fixed period. It can’t grow later.

What it doesn’t cover:

• Interest. You pay it on the tax for the lookback years. A few states reduce it, but most don’t.
• Tax you collected but didn’t remit. If you charged customers sales tax and kept it, most states want every dollar back, with no lookback limit. That money belonged to the state from the start.
• States that already contacted you. Any letter, questionnaire or audit notice about that tax usually rules out a VDA in that state.

A worked example

Say your Shopify store passed $100,000 in sales into a state with a 6% sales tax in January 2020. You’ve sold about $150,000 a year there since, and never collected. It’s now late 2026.

	Wait or just register	Voluntary disclosure agreement
Years owed	2020–2025 (6 years)	2023–2025 (3-year lookback)
Back tax at 6%	$54,000	$27,000
Penalties (up to 25%)	Up to $13,500	$0
Interest	On 6 years of tax	On 3 years of tax
Total before interest	Up to $67,500	$27,000

The VDA saves $40,500 before interest, and more once you add the interest on the three forgiven years. 2026 is the current year, so in both cases you file it as a normal return once you’re registered.

You can lower the bill further. If some of those sales went to businesses that buy to resell, or to tax-exempt buyers, ask them for a resale or exemption certificate now. Many states accept them late. Sales made through Amazon, Etsy or eBay don’t count either, because the marketplace already collected that tax. They still count toward the threshold, though.

How the VDA process works

1. Work out where you have nexus. Look at your sales by state for every year since 2018, across every channel, and compare them with each state’s threshold. Our economic nexus calculator checks a state in seconds, and the state-by-state thresholds table lists them all. Don’t forget physical nexus: FBA inventory, staff or an office in a state count from the first sale.
2. Estimate what you owe in each state. Multiply taxable sales by the rate for each year, and check whether the state taxes what you sell. SaaS and digital products aren’t taxable everywhere.
3. Apply anonymously. Apply to each state directly through a representative, or through the Multistate Tax Commission’s program, where one free application covers every participating state you need. The MTC doesn’t process a state if you owe it less than $500.
4. Negotiate and sign. States usually reply within one to two months with their terms. Once you agree, you sign, and the state learns your name.
5. File and pay. Submit the back returns for the lookback years and pay the tax plus interest, usually within 30–60 days of signing.
6. Register and start collecting. Get a seller’s permit in each state as soon as possible, ideally while the application is in progress. A VDA settles the past. Every sale after that is on you.

When a VDA isn’t worth it

• You crossed the threshold recently. If you’re only a few months late, registering and filing one late return costs little. Some states don’t accept VDAs for periods that short anyway.
• The amount is small. Under a few hundred dollars, the paperwork and any advisor fees can cost more than the penalties you’d save.
• The state has already written to you. At that point, the deal is gone. Answer the letter, and get help if the amount is large.

For everything else, it’s usually worth it. The longer you wait, the more years you owe, and the more likely the state contacts you first. States get sales data from marketplaces, payment processors and the other states, so being found is a question of when, not if.

Selling outside the US?

The UK and EU have their own versions. HMRC and most EU tax offices also reduce penalties when you come forward before they find you. See late EU VAT registration for how it works in Europe.

FAQ

What is a voluntary disclosure agreement for sales tax?

A voluntary disclosure agreement (VDA) is a deal with a state’s tax department for a business that should have been collecting sales tax there but wasn’t. You come forward before the state contacts you, pay the back tax for a limited number of years (usually three or four) plus interest, and the state usually waives the penalties and won’t pursue the years before that.

How far back does a sales tax VDA go?

Usually three or four years, depending on the state. Without a VDA, there’s normally no limit: the statute of limitations doesn’t start until you file a return, so a state can assess every year since you first had nexus.

Are penalties and interest waived under a VDA?

Penalties usually are. Interest usually isn’t, though a few states reduce it. Sales tax you collected from customers but never paid to the state is treated differently: most states want all of it, however far back it goes.

Can I file a VDA after the state has contacted me?

Usually not. A VDA is only available before the state contacts you about that tax, which includes a nexus questionnaire, an audit notice or a letter asking about your sales. Once that happens, you file back returns and the state can charge penalties for every year.

Can I file a VDA anonymously?

Yes, in most states. A representative such as a CPA, a tax attorney or a compliance provider applies on your behalf without naming you. Through the Multistate Tax Commission’s free program, a state only learns who you are after you sign the agreement.

How long does a sales tax VDA take?

States usually reply within one to two months, and the whole process, from working out what you owe to signing and paying, often takes three to six months. You should start collecting tax in that state as soon as you can, because the VDA only covers the past.