What it is

A voluntary disclosure agreement (VDA) is a formal arrangement in which a business that has not been collecting or remitting a state’s sales tax approaches that state, discloses the unpaid liability, and agrees to register and pay going forward. In return, the state offers two things you can’t get once it audits you first: a limited look-back period and penalty relief.

The look-back is the key benefit. Instead of chasing your entire history of unpaid tax, the state agrees to only collect for a defined window — most programs cap it at three or four years. Liability that pre-dates that window is forgiven. Penalties are typically waived or reduced because you came forward voluntarily, though interest on the tax owed is usually still assessed in full.

VDAs are an ongoing program — you can apply at any time. That distinguishes them from tax amnesty, which a state opens for a limited window and which usually offers broader relief (sometimes interest forgiveness too) in exchange for full payment of back taxes during that window. A VDA is the year-round, negotiated route; amnesty is the occasional, take-it-now event.

You can pursue a VDA directly with a single state, or — if you owe in several states — through the Multistate Voluntary Disclosure Program (MVDP) run by the Multistate Tax Commission, which lets you negotiate with many states at once under one uniform procedure while keeping your identity confidential until an agreement is signed.

Why it matters to a multi-state seller

If you sell into many states, the most common compliance failure isn’t refusing to register — it’s discovering, months or years later, that you crossed an economic nexus threshold and should have been collecting all along. At that point the unpaid tax is your liability, not your customers’, plus penalties and interest.

A VDA is the standard tool for cleaning that up on your terms. Without one, a state that finds you first can reach back further (sometimes with no statute-of-limitations cap if you never filed) and stack on penalties. With one, you convert an open-ended, scary exposure into a known number: a few years of tax plus interest, penalties waived. That’s why a nexus study and a VDA often go together — the study finds where you owe, the VDA settles it cheaply.

Worked example

Suppose a wholesaler realizes it has had nexus in a state for six years and accumulated $300,000 in tax it never collected, and the state’s penalty rate would be 25%.

• Audit scenario (state finds you): Because you never filed returns, the state’s look-back may reach all six years. Liability: $300,000 tax + $75,000 penalty + interest = $375,000-plus.
• VDA scenario (you come forward): The state caps the look-back at four years. The two oldest years — say $100,000 of that liability — are forgiven. Penalties are waived. You owe roughly $200,000 tax + interest, and $0 penalty.

Same underlying mistake; the VDA route saves the penalty and forgives the out-of-window tax entirely.

How this connects to staying compliant

A VDA isn’t a one-time escape hatch — it’s the remediation half of a compliance reset. The sequence is usually: (1) run a nexus study to find every state where you have an obligation; (2) for states with material past exposure, negotiate a VDA to cap the look-back and waive penalties; (3) register and begin collecting prospectively; (4) file on schedule from then on.

The catch: a VDA only protects you for the period it covers, and most states require you to not already be under audit or contact to qualify. Once a state sends you a nexus questionnaire or audit notice, the voluntary-disclosure door for that state often closes. The advantage belongs to the seller who moves first.

Sources: 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 The Tax Adviser — State voluntary disclosure programs: A practice guide: https://www.thetaxadviser.com/issues/2024/dec/state-voluntary-disclosure-programs-a-practice-guide/ Multistate Tax Commission — Multistate Voluntary Disclosure Program: https://www.mtc.gov/nexus/multistate-voluntary-disclosure-program/