Voluntary Disclosure Agreements: How to Come Forward on Back Sales Tax

A voluntary disclosure agreement (VDA) may offer a way to resolve unpaid back sales tax before a taxing authority contacts the business. The business generally identifies the affected jurisdiction, evaluates whether it qualifies for that jurisdiction’s program, submits the required disclosure, and completes the returns, payment, and registration steps stated in the agreement.

Act before filing old returns or making an unplanned payment. Eligibility, look-back periods, penalty treatment, application methods, and filing order vary by jurisdiction. Sales-tax rules arise under state law rather than federal law, so disclosure and registration questions must be handled with the relevant state or local taxing authority.

When a Voluntary Disclosure Agreement May Help

A VDA is most relevant when a business discovers a past filing or payment obligation in a jurisdiction where it has not been contacted about that obligation. Common triggers for a review include expanding into new states, changing sales channels, acquiring another business, preparing for financing, or examining whether prior activity created a registration obligation.

Start by separating three questions:

• Where might liability exist? Review the states and local jurisdictions connected to the business’s sales, inventory, personnel, property, contractors, and other activities.
• Which periods and transactions are affected? Reconstruct taxable sales, exempt sales, marketplace activity, tax collected from customers, and tax previously paid.
• Has the taxing authority already made contact? An audit notice, bill, examination notice, information request, or criminal investigation may affect eligibility, depending on the program.

A VDA is one of several ways to resolve back sales tax; for the full range of correction routes, see Behind on Sales Tax: How to Fix Unregistered or Unfiled Back Periods. Registration analysis should come before disclosure strategy. A business that is unsure why it may have been required to register can begin with Sales Tax Nexus Thresholds: What Triggers Registration. Businesses using suppliers to fulfill orders may also need the transaction-focused discussion in Drop Shipping and Sales Tax: How Registration Works.

How Different Business Scenarios Affect the Approach

The business failed to register and did not collect tax

Determine which transactions were taxable and whether the business itself may have to fund tax that was not charged to customers. Sales data should be organized by jurisdiction and filing period before estimating the exposure. Do not assume that a VDA eliminates the underlying tax; the available relief depends on the program and agreement.

The business collected tax but did not remit it

Treat this as a distinct and potentially more serious category. Do not combine collected tax with amounts that were never collected when estimating possible relief. Texas illustrates why the distinction matters: its VDA program generally waives statutory penalties and interest, but interest remains due on tax collected and not remitted. Texas also generally reviews reports due within four years before initial contact, while collected-and-unremitted tax has no look-back limit.

The business sells into several states

Do not treat a multistate issue as one nationwide disclosure. Build a separate file for every potentially affected state or locality, including contact history, sales records, collection records, prior registrations, and filing history. Each jurisdiction may require a different sequence and may offer different relief. When the exposure stems from registering after nexus already existed, the multistate coordination options are covered in Registering After You Already Have Nexus: Handling the Gap Period.

The taxing authority has already contacted the business

Preserve every notice and identify the tax type and periods involved. Contact can disqualify a business from some programs. In Texas, a business must not have been contacted about the liability or received notice of an audit or examination. New York excludes applicants who are under audit for the disclosed tax and periods, have received a bill for the disclosed debt, are under a New York criminal investigation, or are disclosing specified reportable tax-avoidance transactions.

Requirements to Compare Before Applying

There is no single federal VDA application or nationwide eligibility test. The following state examples show why a business should compare programs rather than assume that one state’s rules apply elsewhere.

These examples are not a nationwide survey. Verify the current rules in every jurisdiction where exposure may exist, including whether the program covers the relevant tax, whether anonymous contact is available, what prior contact is disqualifying, and which periods the agreement would cover.

A Practical Voluntary Disclosure Process

1. Map the potential jurisdictions. Identify where the business had sales or operations during the periods under review. Keep confirmed obligations separate from jurisdictions that still require further analysis.
2. Check for prior government contact. Search physical mail, registered-agent correspondence, tax department accounts, email, and records held by previous employees or advisers. Record the date, sender, tax type, periods, and substance of each communication.
3. Reconstruct the exposure. Organize gross sales, taxable sales, exemptions, returns, customer locations, tax collected, and payments by period. Reconcile transaction data to accounting records and bank deposits, and document reasonable explanations for gaps.
4. Review the jurisdiction’s current VDA rules. Confirm eligibility, covered tax types, application route, anonymity options, required disclosures, treatment of interest and penalties, look-back rules, and the required order of application, registration, returns, and payment.
5. Choose the correct submission method. Texas’s traditional process begins with a representative writing to the Comptroller’s Business Activity Research Team; the representative may initially keep the business anonymous, and the request may be sent by email or mail. New York instead requires an online application.
6. Wait when the program requires acceptance first. New York applicants must wait for acceptance before filing returns. Accepted taxpayers then mail the signed agreement and returns together. Filing delinquent returns too early can undermine the intended disclosure sequence.
7. Complete every agreement obligation. Follow the agreement’s instructions for identity disclosure, registration, returns, schedules, tax, interest, and supporting records. In a Texas traditional VDA, voluntarily disclosed tax data and payment are due within 60 days after both parties sign, as specified in the agreement.
8. Set up continuing compliance. Assign responsibility for future returns, exemption documentation, account notices, reconciliations, and changes in business activity. A disclosure resolves only the taxes and periods addressed by its terms; ongoing processes should prevent the same problem from recurring.

Common Problems and the Final Decision Checklist

Filing before confirming procedure: A business may rush to submit delinquent returns without checking whether the program requires prior acceptance. Establish the correct sequence first.

Assuming all historical periods receive the same treatment: A look-back limitation may not apply to every category of liability. Separate tax collected from customers from tax that was never collected, and read the proposed agreement carefully.

Using incomplete sales data: Missing marketplace reports, canceled-order adjustments, exemption certificates, or location data can distort the calculation. Preserve the source records and explain any estimation method.

Ignoring local exposure: State-level analysis may not answer every local sales-tax question. Confirm which agency administers the tax and whether one disclosure covers all relevant jurisdictions.

Failing to plan for payment: Relief from some penalties does not mean the tax disappears. Estimate tax and any applicable interest before committing to an agreement, and identify who has authority to approve and fund payment.

Before moving forward, confirm that the business can answer “yes” to these questions:

• Have all potentially affected states and localities been identified?
• Has every prior notice, bill, audit communication, and investigation-related contact been reviewed?
• Are collected-but-unremitted amounts separated from tax that was not collected?
• Are transaction records organized by jurisdiction and period?
• Has the current program been checked for the relevant tax type and business situation?
• Is the required order for application, acceptance, registration, returns, and payment clear?
• Can the business meet the agreement’s documentation and payment obligations?
• Is a process ready for timely registration and future filings?

If any answer is uncertain, pause before filing old returns. A careful jurisdiction-by-jurisdiction review can protect eligibility, produce a more reliable exposure estimate, and help the business understand exactly what the proposed agreement will—and will not—resolve.