A Voluntary Disclosure Agreement (VDA) is a formal agreement with a tax authority that allows a business to disclose previously unreported obligations. In exchange, a state may offer a limited lookback period, reduced penalties, or other favorable terms.
Why consider a VDA?
VDAs can reduce historical exposure, clarify obligations, and demonstrate good faith before an audit. They are particularly useful when a business discovers economic nexus, use tax, or product taxability issues across multiple states. Terms vary by state, and interest is not always waived.
The VDA process
- Gather sales data, registrations, and prior filings.
- Determine where liabilities may exist.
- Ask whether the state permits an anonymous inquiry.
- Submit an application and negotiate the lookback and payment terms.
- Sign the agreement and settle the disclosed liability.
- Establish an ongoing process to stay compliant.
The agreement is only part of the solution. Businesses should fix the source of the exposure by monitoring nexus, classifying products, registering where required, and filing returns on time.
Kintsugi helps teams identify exposure, organize registrations, and automate future calculations and filings. Work with a qualified tax professional on the state-specific VDA process.
