A Tax Nexus Voluntary Disclosure Agreement (VDA) can benefit your business in a number of ways.
- Reduced penalties. If you are caught not collecting sales tax in a state where you have nexus, you could be subject to significant penalties. A VDA can help you to reduce or eliminate these penalties.
- Limited look-back period. The state will typically limit the “look-back” period for unpaid tax to three or four years for sales tax VDAs. This means that you will only be required to pay tax on sales that occurred within the past three or four years.
- Anonymity. In some cases, you may be able to enter into a VDA anonymously. Do not expose yourself to state authorities until you determine if you have nexus.
- Peace of mind. A VDA means you are in compliance with the law. This can help you to avoid the stress and uncertainty of being audited by the state.
Benefits Outweigh the Risks
Of course, there are also some potential drawbacks to entering into a VDA. For example, you may be required to pay interest on the unpaid tax. However, the benefits of a VDA typically outweigh the drawbacks.
A VDA can help protect you from an audit.
If you believe that your business may have nexus in a state where you are not currently collecting sales tax, you should have a nexus study done. If you have liability then filing a tax nexus voluntary disclosure agreement can help you to reduce your tax liability, avoid penalties, and protect your business from audit.
Here are some additional things to consider when deciding whether to enter into a VDA:
- Each state’s VDA program is different. We’ll make certain you have a clear understanding of the consequences before you submit a VDA.
- If you don’t enter into a VDA and you are later found to be in violation of the law, you could be subject to significant penalties.
- The cost of entering into a VDA will vary depending on the state and the specific terms of the VDA.
If you have any questions about Voluntary Disclosure Agreements, give us a call at 720.787.2280. We can help you to determine if a VDA is right for your business and we’ll negotiate the terms of the VDA in your favor.
