Understanding Voluntary Disclosure Agreements
Voluntary Disclosure Agreements (VDAs) are a proactive approach that businesses can take to mitigate and deal with past tax delinquencies. States typically allow a third-party representative, such as RelianTax, to represent the business anonymously and negotiate an agreement with the state. VDAs are particularly useful for businesses that have expanded into multiple states or have realized errors in their past tax obligations.
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This concept of voluntary disclosure became increasingly important after the 2018 United States Supreme Court decision in South Dakota v. Wayfair, Inc., which allows states to impose taxes on businesses based purely on economic activity, irrespective of physical presence. This means businesses may have tax obligations in states where they've made sales, leading to potential unexpected tax liabilities.
How VDAs Protect Your Business
Waiting for an assessment notice from a tax jurisdiction will likely lead to a more in-depth review and higher taxes, penalties, and interest.
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Benefits of entering a VDA:
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Limiting the look-back period to reduce overall tax liability, penalty, and interest.
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Reducing or completely eliminating penalties for taxes that are in period.
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Registering your business for future taxes.
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Saving significant time and costs compared to being audited.
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Preparing your business for any due diligence procedures.
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Engaging with specialized professionals like RelianTax ensures an in-depth analysis of your business and an optimal approach towards a VDA. Our seasoned professionals focus specifically on sales and use tax controversy and help companies attain full compliance. Unlike larger firms where personnel turnover can lead to delays and errors, our partners directly handle your case from start to finish, providing a more consistent and reliable service.
The VDA Process
The VDA process should start only after a thorough analysis of your business. The first step is to evaluate your Nexus and analyze the taxability of your products/services. Then, we assess your overall exposure in all states and advise on maintaining compliance once registered.
EVALUATE NEXUS
Evaluate physical presence and economic thresholds to determine which jurisdictions require registration.
ANALYZE TAXABILITY
Review revenue streams related to products and services. The combination of nexus and taxability will highlight jurisdictions to focus on.
ASSESS EXPOSURES
Estimate exposure of unpaid taxes, if nexus is triggered and a tax decision applied, to help determine where you’re most at risk for unpaid taxes.
If a VDA seems suitable, our team will work with your business leaders to tailor solutions that effectively overcome your specific tax challenges. We can manage single or multiple state VDAs concurrently and provide guidance throughout the VDA process.
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Moreover, once registered with the state, we work with you to ensure you understand how to stay compliant moving forward. Our team supports you through every step of the process, from determining your state tax footprint and reviewing taxability and sourcing of revenue, to mitigating exposure and preparing prospective filings.
Proactive engagement with your tax obligations through a VDA can help reduce risks, lower business costs, and put your business on a path to future compliance. A specialized professional such as RelianTax can guide you through this complex process, ensuring optimal outcomes for your business.
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