Business InsightsNewsTaxes
Nearly three years after the U.S. Supreme Court’s Wayfair decision, 45 states have enacted economic nexus rules, requiring remote sellers to register and remit sales tax if they meet certain thresholds (e.g., $100,000 in sales or 200 transactions per year). Many inbound companies are now realizing that they have unknowingly triggered nexus and failed to collect sales tax in states where they do business.
In addition to economic nexus, some companies may have already created physical nexus before Wayfair by:
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Employing personnel or agents in the U.S.
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Soliciting sales at tradeshows
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Storing inventory in U.S. warehouses (e.g., Fulfillment by Amazon)
Failing to comply with these obligations can lead to significant liabilities and penalties.
Why Use a Voluntary Disclosure Agreement (VDA)?
Before registering and collecting sales tax going forward, companies should assess past exposure and consider Voluntary Disclosure Agreements (VDAs) to limit liability. VDAs are designed to:
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Encourage compliance
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Limit retroactive tax liability
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Reduce or abate penalties and interest
Most states offer look-back periods of 3–4 years and allow anonymous applications—though some (e.g., California, Illinois, New York) require identity disclosure upfront.
VDA Disqualification Triggers
A company may be ineligible for a VDA if:
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The Department of Revenue (DOR) has already contacted the company
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The company is already registered for the tax in question
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The company collected but failed to remit the tax
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In some states, if one company in a group receives a nexus questionnaire, it can disqualify the entire group
Information Required in a VDA
The disclosure typically includes:
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Company background (state of incorporation, products, etc.)
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Nexus creation date and how nexus was established
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Sales volume and estimated liability
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Whether sales tax was collected but not remitted
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Corporate registration status with the state
States may audit disclosures and void VDAs for misstatements or omissions.
Additional Considerations for Inbound Companies
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FEIN Requirement: Companies without a Federal Employer Identification Number (FEIN) usually cannot register with a DOR, which may hinder VDA completion.
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Other Tax Obligations: Some states (e.g., PA, OH, TX, WA) may require income or gross receipts tax filings in addition to sales tax.
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Deadline Sensitivity: VDAs are often time-sensitive, with tight deadlines (30 days). Missing one may void the agreement and expose the taxpayer.
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No Refunds Within Look-Back Period: Most VDAs don’t allow amended returns or refunds for overpaid taxes in prior years—even if nexus didn’t exist or the product was tax-exempt.
Why Act Now?
With post-pandemic revenue shortfalls and aggressive enforcement, states are increasingly targeting non-compliant companies. Companies operating in multiple states may need to pursue several VDAs simultaneously.
Success depends on:
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Deep familiarity with each state’s process
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Accurate disclosure and quantification
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Ability to manage related tax obligations
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Meeting deadlines without error
Working with professionals experienced in state and local tax matters—not just sales tax—can be critical to completing the VDA process successfully.