Sales Tax Voluntary Disclosure Agreements

By Brian Greer on Tue, Mar 01, 2016 @ 10:30 AM

Topics: sales tax VDA

VDA’s (Voluntary Disclosure Agreements) are a hot topic so far in 2016. I believe companies that have been VDA_CTA_Finalout of compliance historically use the beginning of the year to course correct and get on the right footing from a sales and use tax perspective.

If you are currently out of compliance, a VDA offers several benefits including a limited look back period, waiver of penalty, and some protection from an audit.

Let’s look at each of these more closely:

  1. Limited Look Back Period – In states where a business is not currently registered for sales tax purposes, there is no statute of limitations associated with how far back a state may assess tax due in the event of an audit. In practice, most states will limit this period to seven years. Even so, seven years of tax + penalty + interest can be a hefty sum. Through a VDA, a business may limit this look back period. In most states, the look back period is either three or four years although it can be longer. A key benefit of the VDA is for the business that has tax liability that is older than the 3-4 year look back period. For example, if you have $10,000 in tax due for each of the previous 7 years and you are in a three look back state, then you can voluntarily disclose the last three years of liability ($30,000) and the state will forgive the remaining four years ($40,000) of tax due. This can be a big win for a business.


  1. Waiver of Penalty – Generally speaking, most VDA programs will waive any penalty associated with not remitting the applicable taxes historically. It’s likely that you will still be assessed interest on the tax due but the penalty is generally waived.


  1. Protection from an Audit (somewhat) – Audit protection can be misinterpreted. When you submit a VDA, the state has the right to audit the disclosure and to ensure you are accurately reporting the tax associated with the look back period. If the state believes that you incorrectly represented the tax due, then they have the ability to “unwind” the VDA and audit you for previous periods. The audit protection that I’m referring to comes after you have initiated the VDA and prior to finalizing the VDA. It doesn’t happen often, but I occasionally see situations where a taxpayer initiates the VDA with a state, and as they are determining their final disclosure amount, they receive an audit notice from the state. In this situation, once you are in the VDA program, the state is not able to open a new audit.


There are other reason to pursue a VDA beside those identified above. Publicly traded companies are generally required to disclose known tax exposures. If you are a private business seeking outside financing or perhaps looking to sell the business, a VDA may also be required. For additional details, we have both a webinar and a white paper available for download.


Brian Greer

Written by Brian Greer