What it is

Backfiling — sometimes called filing back taxes or remediating past liability — is what you do once you realize you had a sales tax obligation in a state but never filed returns there. It covers every period in which you had nexus but didn’t register, collect, or remit. To backfile, you reconstruct historical sales by state, calculate the tax that should have been collected, file the overdue returns, and pay that tax plus interest and any penalties the state assesses.

Backfiling is fundamentally a remediation activity. It usually surfaces after a nexus study reveals that economic or physical nexus was triggered months or years ago — frequently in 2018 or later, after South Dakota v. Wayfair let states tax remote sellers based on sales volume alone.

Why it matters to a multi-state seller

For a multi-state e-commerce or wholesale business, unfiled periods are a quiet, compounding liability. The tax you failed to collect doesn’t disappear — it becomes your money owed to the state, not your customer’s, because you can rarely go back and bill past buyers. Interest accrues the entire time, and penalties stack on top.

The exposure is often worse than sellers expect for one structural reason: in most states, the statute of limitations that normally caps how far back an auditor can reach only starts running once a return is filed. If you never registered and never filed, that clock may never have started, leaving you theoretically exposed back to the date nexus began. <!– src: https://www.thetaxadviser.com/issues/2024/dec/state-voluntary-disclosure-programs-a-practice-guide/ –> That is exactly why how you backfile matters as much as whether you do.

Worked example

Suppose a Wayfair review shows your brand crossed the economic nexus threshold in three states two years ago and never registered:

• State A: $40,000 of tax should have been collected over the open periods.
• State B: $25,000 should have been collected.
• State C: $15,000 should have been collected.

That’s $80,000 of base tax you now owe out of pocket. If you simply register late and backfile cold, the states can also assess interest on every period plus late-filing and late-payment penalties — which commonly run 5%–25% of the tax depending on the state. <!– src: https://sales.tax/expert-articles/sales-tax-penalties-explained/ –> A 20% penalty on $80,000 is $16,000 before interest.

Now route the same backfiling through a voluntary disclosure agreement. Most VDA programs limit the look-back to 3–4 years and waive penalties, though interest is typically still owed. <!– src: https://www.salestaxinstitute.com/resources/pros-and-cons-of-sales-tax-voluntary-disclosure-agreements –> The base tax may be similar, but the $16,000 penalty layer can disappear and any exposure older than the look-back window is forgiven — a materially smaller bill for the same disclosure.

How backfiling relates to VDAs and amnesty

Backfiling is the action; a VDA is one vehicle for doing it on favorable terms. A voluntary disclosure agreement is a contract in which you come forward before the state finds you, in exchange for a capped look-back and waived penalties. Critically, VDAs are available continuously and let you approach the state anonymously through a representative before revealing your identity. <!– src: https://www.thetaxadviser.com/issues/2024/dec/state-voluntary-disclosure-programs-a-practice-guide/ –>

Tax amnesty is different: it’s a temporary, broadly advertised program a state opens for a limited window, sometimes waiving both penalties and interest. Because amnesty windows are unpredictable, most sellers backfile through a VDA rather than waiting for one. For businesses with exposure in several states, the Multistate Tax Commission’s Multistate Voluntary Disclosure Program lets a single application cover multiple states at once. <!– src: https://www.mtc.gov/nexus/multistate-voluntary-disclosure-program/ –>

The wrong move is filing nothing and hoping. The second-wrong move is backfiling cold when a VDA was available — paying penalties and reaching back further than you had to.

Sources: The Tax Adviser — State voluntary disclosure programs: A practice guide: https://www.thetaxadviser.com/issues/2024/dec/state-voluntary-disclosure-programs-a-practice-guide/ Sales Tax Institute — Pros and Cons of Sales Tax Voluntary Disclosure Agreements: https://www.salestaxinstitute.com/resources/pros-and-cons-of-sales-tax-voluntary-disclosure-agreements Multistate Tax Commission — Multistate Voluntary Disclosure Program: https://www.mtc.gov/nexus/multistate-voluntary-disclosure-program/ The Sales Tax People — Sales Tax Penalties Explained: https://sales.tax/expert-articles/sales-tax-penalties-explained/