Voluntary Disclosure Agreement Sales Tax

Voluntary Disclosure Agreement Sales Tax is a legal arrangement between a taxpayer and a state tax authority that allows businesses to proactively report previously undisclosed or underreported sales tax liabilities. This agreement is particularly beneficial for companies that have inadvertently failed to comply with state sales tax requirements. By voluntarily coming forward under a VDA, businesses can limit their exposure to penalties and interest on overdue taxes, and in many cases, reduce the look-back period for tax liabilities. This proactive approach not only simplifies compliance and fosters goodwill with tax authorities but also mitigates potential legal and financial repercussions associated with non-compliance. Businesses seeking to ensure tax compliance and minimize financial risks often consider entering into a Voluntary Disclosure Agreement for sales tax.

When multistate companies realize they have historical state tax liabilities there are generally two options available to resolve these issues:

• Wait for the states to audit your business and assess back taxes, interest and penalties, or
• Be proactive and negotiate a settlement with the state to limit the taxes due and reduce the interest and penalties paid through the voluntary disclosure agreement (VDA) process.

Interstate Tax Strategies Voluntary Disclosure Services Sales Tax:

Interstate Tax Strategies has a proven model for working with the states to facilitate VDA settlement agreements. We work with your business to learn the best way to approach the states and how to minimize the tax liability owed. Our techniques and insights into multistate sales tax have saved clients significant amounts of tax dollars through the VDA process. Contact us for a no cost and confidential discussion of your company’s tax situation VDA@salestaxstrategies.com.

What is a VDA Settlement?

A Voluntary Disclosure Agreement is a formal contractual agreement between the state and the taxpayer where the state agrees to limit the look back period for the taxes owed and waive penalties (and sometimes interest) on the taxes that are paid.

In return, the taxpayer agrees to pay the tax and interest due for the look back period, register for the remittance of sales and use tax on future sale, and begin the process of collecting and remitting sales or use tax on taxable transactions.

VDA settlement agreements are normally conducted on an anonymous basis through a third-party- such as Interstate Tax Strategies Voluntary Disclosure Services Sales Tax. This ensures that the identity of the taxpayer is not revealed to the state until the agreement has been formalized and all parties are in agreement with the settlement. VDA settlements must be conducted prior to the state contacting your company so it is critical that you begin assessing your company’s potential liability as soon as possible.

Do All States Have Voluntary Disclosure Agreement programs?

Each state has some type of VDA program. Many cities that administer their own sales tax also offer these VDA programs. Cities like New York, Chicago, San Francisco, and Denver each offer VDA programs for self-administered taxes.

What taxes are eligible for VDA?

Over the past 26 years, I have negotiated VDA settlements for sales, use, telecommunications excise tax, corporate income tax, franchise tax, and communications utility taxes. In most cases, any tax that is imposed and administered by a state or local jurisdiction is eligible for a VDA settlement.

How many years of tax are covered under a VDA?

The “look back” period for VDAs varies by state. Most states have a 36 month “look back” period from the date they are approached. Some states have a 48 month “look back” period and others have a 3 calendar year look back. In an audit situation, the states normally audit unregistered companies for the previous six to eight years. They will also impose charge interest and impose penalties for late tax payments which can be as high as 25% of the taxes due.

What if we have collected the tax already?

Many of the Voluntary Disclosure Agreements we negotiate involve tax that has been collected from customers but not remitted. Even under these situations, most states are willing to enter into VDA settlements. Some states will impose a 10% penalty under the VDA for tax that has been collected but not remitted. There is generally no limited look back period for tax that has been collected.