What Is a Voluntary Disclosure Agreement (VDA) and Do You Need One?

In short: A voluntary disclosure agreement (VDA) is a deal with a US state tax authority to settle taxes you should have paid but didn't, before the state contacts you. You come forward, file and pay the back tax plus usually interest. In return, the state normally waives most penalties and limits how many years it looks back, often three or four.

Updated October 2026: We added an at-a-glance summary, plain-English definitions of the key terms (VDA program, tax obligation, tax liability, look-back period, amount due) and a worked example of how a VDA changes what you pay. State program terms were rechecked against Texas, Washington, California and MTC guidance.

Sales and use tax is one of the hardest taxes to keep on top of, especially if you sell in several states. You may have heard of voluntary disclosure agreements and wondered whether you need one. This guide explains what a VDA is, who can use one, how the process works and when it makes sense. You can also read How To Use VDAs To Your Client’s Advantage.

At a glance:

• What it is: a written agreement with a state to settle unpaid tax on agreed terms.
• Who qualifies: usually only businesses the state has not yet contacted about that tax.
• Typical look-back: three or four years, set by each state.
• What is waived: most or all penalties. Interest is often still due.
• Main catch: tax you collected from customers but did not pay over is usually not limited by the look-back.

What is a voluntary disclosure agreement (VDA)?

A voluntary disclosure agreement is a written agreement between a business and a state tax authority to settle unpaid tax on agreed terms. The business discloses what it owes. The state agrees to reduce or waive penalties and to limit the periods it will assess.

States run these deals through a voluntary disclosure program (VDP). The names differ, but the idea is the same: it costs less to come forward than to be found.

VDAs are most common for sales and use tax. But many programs also cover other taxes, such as income tax, franchise tax and withholding. Some states exclude certain taxes. Texas, for example, accepts all taxes it administers except fuel taxes collected under the International Fuel Tax Agreement (IFTA).

Businesses often build up unpaid sales tax without knowing it. This happens when they cross a state’s economic nexus threshold, store stock in a new state or buy another company. Read more in our guide: Practice Development: Voluntary Disclosure Agreements Post-Wayfair.

What do the key VDA terms mean?

A handful of terms come up in every VDA. Knowing them makes state guidance easier to follow.

• VDA program: the state's process for accepting voluntary disclosures. Each state runs its own, and the Multistate Tax Commission (MTC) runs a multistate one.
• Tax obligation: a duty to register, collect, file or pay a tax in a state. Nexus is what creates it.
• Tax liability: the tax you actually owe for past periods because you did not meet that obligation.
• Look-back period: the number of past years the state asks you to file and pay for under the agreement.
• Amount due: what you pay to complete the VDA. It is the back tax for the look-back period, plus any interest and penalties the state does not waive.

Why does sales and use tax compliance matter?

It matters because unpaid sales or use tax grows every month, with penalties and interest on top. Sales tax is a tax on sales of goods and some services. You collect it from customers and pay it to the state.

Use tax applies when you use, store or consume taxable items in a state and no sales tax was paid. For example, if an out-of-state supplier sells you equipment without charging sales tax, you may owe use tax on it.

If you never collected the tax, you still owe it. The state can bill you for it even though you can no longer recover it from customers. That is why early action matters.

Who is eligible for a VDA?

You are usually eligible only if the state has not contacted you about the tax you want to disclose. Most states treat these as disqualifying:

• An audit notice or an open audit
• A letter, nexus questionnaire or other inquiry about that tax
• An existing registration for that tax type
• Filing returns or making payments for that tax type

Some states go further. Washington, for example, requires no registration and no enforcement contact in the prior four years plus the current year to get full benefits. Contact with a related business can also count. Evasion or misrepresentation rules you out.

Check eligibility before you start. Once a state contacts you, the door usually closes.

How does the VDA process work?

The process usually has five steps, though details vary by state:

1. Anonymous first contact: A representative, such as a tax advisor, contacts the state without naming the business. Texas, Washington and the MTC all allow this at the start.
2. Application and disclosure: The business describes its activity, the taxes involved, the periods affected and an estimate of what it owes.
3. Offer and negotiation: The state sets out the look-back period, the penalties it will waive and how interest applies.
4. Signed agreement: The business reveals its identity, signs the agreement and registers.
5. Returns and payment: The business files the back returns and pays the tax and interest by the deadline. It then stays compliant going forward.

Under the MTC program, for example, a taxpayer has 60 days after a state signs to return the agreement with all registrations, returns and payments.

How do state voluntary disclosure programs compare?

Each state sets its own terms, so the look-back period and penalty relief differ. Here are some examples from state and MTC guidance:

One rule is almost universal. If you collected sales tax from customers but did not pay it over, most states will not limit the look-back for that money. Texas and Washington both say this in their guidance.

What is the MTC Multistate Voluntary Disclosure Program?

The Multistate Tax Commission (MTC) runs a single program that lets you approach several participating states at once. You stay anonymous to the states until an agreement is signed. Each state still sets its own look-back period and terms.

Is there a Streamlined Sales Tax VDA?

Not yet. The Streamlined Sales Tax Governing Board has been developing a VDA pilot for remote sellers. Reports in September 2026 said it could launch as early as January 1, 2027, with a two-year look-back in participating states. Until it is approved, use state programs or the MTC. Separately, registering through the Streamlined system gives amnesty for past tax only in Tennessee.

What are the benefits of a VDA?

The main benefits are lower penalties and a shorter look-back period:

• Reduced penalties: Most states waive some or all penalties. Interest is usually still due unless the state waives it.
• Limited look-back period: A VDA usually covers three or four years. Without one, a state can often go back much further. California, for example, can go back eight years.
• Lower risk of criminal action: Coming forward before the state finds you reduces this risk in serious cases.
• Control over timing: You decide when to deal with the problem, rather than reacting to an audit.
• A clean start: Once the agreement is complete, past periods are settled and you can focus on staying compliant.

Worked example: how a VDA changes the amount due

The figures here are illustrative, but the rules come from the CDTFA Out-of-State Voluntary Disclosure Program. An online retailer based outside California has been engaged in business there for five years. It never registered, and it owes about $15,000 of California use tax for each year.

• Without a VDA: CDTFA can assess up to eight years, so all five years are open. The tax liability is $75,000, plus interest and late filing and payment penalties.
• With a VDA: CDTFA can assess only three years. The tax is $45,000, plus any interest that applies. CDTFA can also waive the late penalties if you ask in writing and show reasonable cause.

In this example, the VDA cuts the tax bill by $30,000 before any penalty savings. In return, the retailer registers and collects tax from then on. The program is closed to businesses that hold, or have held, a California seller's permit.

What are the downsides of a VDA?

A VDA still costs money, and it takes time. Keep these points in mind:

• You pay the back tax, and usually interest, out of your own pocket.
• You must register and stay compliant from then on.
• Collected but unremitted tax is rarely limited by the look-back period.
• Each state is a separate agreement, unless you use the MTC program.
• Advisor fees add to the cost.

Do you need a VDA?

You may need a VDA if you owe sales or use tax in a state where you are not registered and the state has not contacted you yet. Common triggers include:

• Expansion into new states: You passed a state’s economic nexus threshold without noticing. See our guide to economic nexus by state.
• Inventory in a new state: Stock in a 3PL or Amazon FBA warehouse can create physical nexus.
• Acquisitions: You bought a business and inherited its tax exposure.
• Honest mistakes: You misread the rules for a product or service.
• Audit risk: You expect a state to contact you soon. Once an audit starts, a VDA is usually off the table.

When might you not need a VDA?

If the amount owed is small, the period is short and you only recently crossed the threshold, registering now may be enough. Some states also run time-limited amnesty programs with their own terms. A tax professional can compare these options with a VDA.

Do foreign sellers need a VDA?

They can. Non-US sellers with US sales above a state’s threshold have the same obligations as US sellers. Washington ran a special program for international remote sellers, with applications accepted from February 1 to May 31, 2026. Read more in US sales tax for foreign sellers.

How can a tax professional help with a VDA?

A tax professional can measure your exposure, contact states anonymously and negotiate the terms for you. This matters most when several states and tax types are involved. That’s when the expertise of a tax professional becomes invaluable.

They can also help you decide whether a VDA is right for you. They will look at how much you owe, how likely an audit is and the other options, such as registering now or using an amnesty. We cover this in Accountant Checklist: Determining the Best Application of a VDA.

Is a VDA worth it for your business?

For most businesses with real back-tax exposure, yes. A VDA usually costs less than waiting to be found. You cap the years you pay for and avoid most penalties. But you need to act before the state contacts you.

Steps to take now:

1. Run a nexus review for every state where you sell.
2. Estimate what you owe in each state.
3. Check which states have already contacted you.
4. Speak to an advisor about VDAs, amnesty or simply registering.
5. Set up ongoing collection and filing so the problem does not return.

Do you need help with your sales tax compliance? Book a free call with one of our sales tax experts to discuss your situation. For ongoing US filings, see LumaTax.

Sources

• Texas Comptroller: Voluntary Disclosure Agreements
• Washington Department of Revenue: Voluntary Disclosure Program
• Washington DOR: International Remote Seller VDP FAQ
• California CDTFA: Out-of-State Voluntary Disclosure Program
• Multistate Tax Commission: Multistate Voluntary Disclosure Program procedures
• Streamlined Sales Tax: Registration FAQ

How Taxually handles this

Taxually’s LumaTax runs a nexus analysis on your sales, helps you register in the states where you must collect, and prepares and files multi-state sales tax returns, including Canadian GST/HST. LumaTax is currently available to enterprises and accounting firms. For the full workflow, read how to automate US sales tax filing in every state.

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