What it means
A voluntary disclosure agreement, or VDA, is a deal with a state tax department. A business that owes a tax it never registered for or filed comes forward before the state contacts it. In return the state limits how far back it collects and waives most penalties. Interest is usually still due.
Nearly every state with a sales tax runs a program, and many use them for income and franchise tax too. They matter most after economic nexus, when a company can owe tax in states it never thought about.
The first approach is usually anonymous: a CPA or lawyer describes the facts without naming the company and negotiates terms. Each state sets its own lookback, commonly three or four years. Tax the company collected from customers but never paid over is treated differently: it's usually owed for every period it was collected, and penalties on it may not be waived.
Eligibility ends at first contact. If the state has already sent a nexus questionnaire or opened an audit for that tax, the program generally isn't available.
The Multistate Tax Commission runs a program that lets one application reach several member states at once, keeping the company's name confidential until each state signs.
A company that crossed a state's threshold five years ago would, without a VDA, face five years of tax, interest and penalties. Under a VDA with a three-year lookback, it registers, files three years of back returns, and pays the tax and interest for those years with penalties waived.
Why it matters. If you crossed economic nexus without registering, a VDA usually limits the bill to a few years of tax and interest instead of every period since you crossed. Once the state contacts you first, it's generally no longer available for that tax.
The entry, worked
A SaaS company crossed a state's economic nexus threshold three years ago and never registered. Its VDA covers $40,000 of tax and $6,000 of interest, with penalties waived.
| Account | Debit | Credit |
|---|---|---|
| Sales tax expense — prior periods | $40,000.00 | |
| Interest expense | $6,000.00 | |
| Sales tax payable — voluntary disclosure | $46,000.00 | |
| Total | $46,000.00 | $46,000.00 |
Tax the company never collected from customers is its own cost now, and the liability is booked once it's probable and can be estimated; if prior statements were materially wrong, it's an error correction instead.
Common questions
How far back does a VDA go?
Usually three or four years, but each state sets its own, and tax you collected and didn't remit can reach further back.
Can we stay anonymous?
Yes, at first. A representative negotiates without naming the company, and the name is disclosed when the agreement is signed.
What if the state contacts us first?
Generally not for that tax. Once the state has contacted you, by letter, questionnaire or audit, the voluntary program is usually closed to you.
Where it comes up
The glossary entries, founder guides and lessons on this site that use the term and link here.
- Sales tax nexusThe connection with a state that obliges a seller to collect its sales tax — physical presence, or economic nexus from sales into the state above a threshold (commonly $100,000) since South Dakota v. Wayfair (2018)Glossary
- Sales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.Guide · 4 min
- Registering in a new state: remote hires and nexusA remote hire or nexus in a new state means foreign qualification, payroll tax accounts and maybe a sales tax permit. What to register, in what order.Guide · 6 min
Read further
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.