Voluntary Disclosure Agreement: A “Get Out of Audit Jail Free” Card?

Let’s face the facts: sales tax audit penalties are no joke. States can go back years and pile on penalties and interest faster than you can say “nexus,” especially if they discover you were collecting—or should have been collecting—sales tax that was never remitted.

But what if there’s a diplomatic way to get ahead of a sales tax compliance problem before it turns into a full-blown audit?

Enter the Voluntary Disclosure Agreement (VDA)—affectionately known in the tax world as your opportunity to clean up past tax exposure before a state lights a fire under you.

What Is a Voluntary Disclosure Agreement (VDA)?

So, what is a voluntary disclosure agreement?

At its core, a voluntary disclosure agreement is a proactive compliance program offered by most U.S. state tax authorities. It’s a contractual arrangement between a taxpayer and a state in which the business voluntarily discloses previously unreported or underreported tax liabilities before the state launches an audit or other enforcement action.

In exchange for stepping forward voluntarily, states typically offer:

• Limited look-back periods, often 3-5 years instead of unlimited exposure if the state discovers the issue first
• Waiver or reduction of penalties, which can otherwise amount to a hefty percentage of tax due
• Occasional interest relief, although many states still require statutory interest

In short, a VDA sales tax agreement is an opportunity to come clean and settle your outstanding sales tax liabilities with a state before they decide to pick a fight with you first.

Not sure whether your business qualifies for a voluntary disclosure agreement? The team at SalesTaxSolutions.US can help evaluate exposure and determine whether a VDA strategy makes sense before approaching a state.

VDA vs. Tax Amnesty—What’s the Difference?

Both VDAs and tax amnesty programs offer relief, but they serve different purposes.

Features	Voluntary Disclosure Agreement (VDA)	Tax Amnesty Program
Availability	Ongoing in most states; year-round	Temporary, limited-time program
Eligibility	Only before state audit or contact	Sometimes broader eligibility
Anonymity	Often allows anonymous application through a representative	Typically requires full disclosure upfront
Look-Back Period	Limited (commonly 3–5 years)	Varies by program
Penalties	Commonly waived or reduced	Frequently waived during program window
Interest	Usually still owed	Sometimes reduced or waived
Best For	Proactive compliance	Limited-time cleanup opportunity

Bottom line: a voluntary disclosure agreement (VDA) is a strategic, proactive compliance move. Tax amnesty programs are temporary opportunities with fixed deadlines. Timing—and whether the state has already contacted you—makes all the difference.

How Does a Voluntary Disclosure Agreement Work?

While details vary by state, the voluntary disclosure agreement process generally follows these steps:

1. Discovery

A business realizes—often through an internal review or nexus study—that it has sales tax obligations in a state where it has not been collecting or filing.

Note that VDAs are generally intended for businesses that did not collect tax because they were unaware of nexus obligations. If tax was collected but not remitted, eligibility may be limited or treated differently.

2. Preliminary Inquiry/Anonymous Outreach

Many states allow anonymous outreach through a representative. This lets your advisor confirm eligibility before revealing your company’s identity.

3. Disclosure

The business provides details about activities creating nexus and estimates liability for the proposed look-back period.

Accuracy matters. Failure to disclose material facts can allow the state to void the agreement later.

4. Negotiation

The state establishes:

• The look-back period
• Penalty waivers or reductions
• Filing and payment requirements

In return, the business agrees to register, file past returns, and pay tax plus applicable interest.

5. Agreement Execution

Once finalized, the state issues a legally binding Voluntary Disclosure Agreement.

Now, the business must fulfill the terms and pay the toll. After returns are filed and payments made, prior periods covered by the VDA are considered resolved, and the business transitions into ongoing compliance.

Pros and Cons of a Voluntary Disclosure Agreement (VDA)

Like most things in tax compliance, a VDA is not a magic wand—it’s a calculated business decision with clear advantages and a few important considerations.

Here’s a clear-eyed look at both sides.

Which States Allow Voluntary Disclosure Agreements?

The table below provides general look-back periods and starting points for verification. States periodically update rules, so always confirm with the appropriate Department of Revenue.

State	Sales Tax VDA Look-Back Period	DOR Source
Alabama	Three years (36 months)	Alabama Voluntary Disclosure Program
Arizona	Four years (48 months)	Arizona Voluntary Disclosure Program
Arkansas	Three years (36 months) or whenever nexus was established	Arkansas Voluntary Disclosure Program
Colorado	Three years (36 months)	Colorado Voluntary Disclosure Program
Connecticut	Three years (36 months)	Connecticut Voluntary Disclosure Program
District of Columbia	Three years (36 months)	District of Columbia Voluntary Disclosure Program
Florida	Three years (36 months)	Florida Voluntary Disclosure of Tax Liabilities
Georgia	Minimum of three years (36 months)	Georgia Voluntary Disclosure Agreements
Idaho	At least three years (36 months)	Idaho Voluntary Disclosure Agreement Program
Illinois	Four years (48 months)	Illinois Voluntary Disclosure Program
Indiana	Three full calendar years plus the current period	Indiana Voluntary Disclosure Program
Iowa	Maximum look-back period of five years (60 months)	Iowa Voluntary Disclosure Program
Kansas	Three years (36 months)	Kansas Voluntary Disclosure
Kentucky	Four years (48 months)	Kentucky Voluntary Disclosure
Louisiana	Three full calendar years up to the current period	Louisiana Voluntary Disclosure Agreement
Massachusetts	Three years (36 months)	Massachusetts DOR Voluntary Disclosure Program
Michigan	Maximum of four years (48 months)	Michigan Voluntary Disclosure
Minnesota	Three-four years (36-48 months)	Minnesota Voluntary Disclosure Program
Mississippi	Three years (36 months)	Mississippi Voluntary Disclosure Agreement (VDA) Program
Missouri	Four years (48 months)	Missouri Voluntary Disclosure Program
Nebraska	Three years (36 months)	Nebraska Voluntary Disclosure Program
New Jersey	Four years (48 months)	New Jersey Voluntary Disclosure Program
New York	Typically three years (36 months)	New York Voluntary Disclosure
North Carolina	Three years (36 months)	North Carolina voluntary Disclosure Program
North Dakota	Generally three years (36 months)	North Dakota Voluntary Disclosure Program Guideline
Oklahoma	Three years (36 months)	Oklahoma Voluntary Disclosure Agreement Guide
Pennsylvania	Three years (36 months)	Pennsylvania Voluntary Disclosure Program
Rhode Island	Generally three years (36 months)	Rhode Island Voluntary Disclosure Program
South Carolina	Three years (36 months)	South Carolina Voluntary Disclosure Program
South Dakota	Three years (36 months)	South Dakota Sales & Use Tax Voluntary Disclosure Program
Tennessee	Three-four years (36-48 months)	Tennessee Voluntary Disclosures
Texas	Four years (48 months)	Texas Voluntary Disclosure Program
Utah	Generally three years (36 months), or whenever nexus was established	Utah Voluntary Disclosure Program
Vermont	Three years (36 months)	Vermont Voluntary Disclosure Program
Virginia	Generally three years (36 months)	Virginia Voluntary Disclosure for Businesses
Washington	Four years (48 months) plus the current year	Washington Voluntary Disclosure Program
West Virginia	Generally three years (36 months)	West Virginia Voluntary Disclosure Agreements
Wisconsin	Four years (48 months) plus the current year	Wisconsin Voluntary Disclosure Program
Wyoming	No more than three years (36 months)	Wyoming Voluntary Disclosure

Final Thoughts: Come Clean Before They Come Calling

A voluntary disclosure agreement is one of the most powerful tools available for businesses to limit exposure to sales tax audit penalties and crippling back-tax liabilities. By negotiating a limited look-back period and waiving penalties, you not only get your tax house in order, you also protect your company from the kind of interest and penalties states love to assess when they hold all the cards.

If you suspect there’s unpaid sales tax out there (especially post-Wayfair economic nexus regimes), don’t wait until the mailbox fills up with notices. With the right approach, a VDA could be the best voluntary decision you make this year.

SalesTaxSolutions.US specializes in identifying nexus exposure, managing VDA negotiations, and building sustainable multistate compliance strategies. If you’re unsure where your business stands, a proactive review today can prevent a costly audit tomorrow.