Many businesses engage in interstate commerce and are liable for sales taxes in one or more of those states. It’s becoming more and more common, especially for small businesses who sell via the Internet, to create sales tax nexus. In some cases, these businesses fail to file sales taxes in states where they should. It comes as a surprise that they owe sales taxes at all and often the time to file has passed. If you own a company involved in multi-state transactions and you find yourself owing past sales taxes, filing a voluntary disclosure agreement could be a great option.
A voluntary disclosure agreement (VDA) is a legal means for taxpayers to self-report back taxes owed for income, sales, property, and other types of income or capital. In exchange for voluntarily reporting the tax due, states generally grant a waiver of penalty and also a limited look back (generally 3-4 years) potentially reducing the tax due significantly as compared to an audit. If back taxes are not disclosed, but are instead discovered through an audit, the tax payer is at a disadvantage and will end up being assessed various penalties plus interest plus all historical tax due.
If your sales taxes are delinquent, filing a VDA could be a smart business decision. If you own a small company, the penalties levied by governments could do serious damage to your financial stability.
If you own a company that executes transactions in more than one state, you need to review your sales tax to ensure that there are no delinquencies. If you find that you have not collected and remitted all of your sales tax, filing a VDA protects your company from harsh penalties and allows you to settle on the amount that you owe. Voluntary disclosure agreements can be a good business decision.