Navigating Sales Tax Registration, Backfiling, and VDAs

Ever felt like you're playing catch-up with state tax rules? You’re not alone, and more importantly, you’re not doomed.

The truth is, a few proactive moves around sales tax compliance can mean the difference between peace of mind and a disaster. Here’s a quick guide to three essential tools every business needs to understand: Registrations, Backfilings, and Voluntary Disclosure Agreements (VDAs).

🟣 1. Registration: Raise Your Hand..... At the Right Time

Sales tax registration isn’t just a formality. It’s your way of saying: “Hey state, we’re here and playing by the rules.”

🕒 When should you register?
When you establish nexus, which might happen if you:

• Have physical presence – for example, locations, contractors, or employees

• Cross economic thresholds (like $100K in sales OR 100 transactions)

• Sell through marketplaces, affiliates, or have click-through sales

⚠️ Heads up:

• If you register before required to? You’ll have to start assessing and remitting as soon as you register, so be ready!

• If register too late? Penalties and interest can snowball fast.
  
  

🟡 2. Backfiling: Clean Up What’s Behind You

Did you miss filings before registration or discover past mistakes? Backfiling (or also called amended returns) is how you fix that, but don’t make it a red flag by not being careful.

🔍 You might need to backfile if:

• You recently registered and realized you had prior obligations

• You’ve found errors in past filings such as under reporting sales or tax collected

💥 Be warned:

• Filing late without a VDA? Expect full penalties.

• Large backfilings? Make sure everything is spotless.

• Accuracy is non-negotiable—review everything twice.
  
  

🔵 3. VDAs: Voluntary Now, or Mandatory (and Costly) Later

A Voluntary Disclosure Agreement (VDA) lets you come clean on past tax issues before the state catches you. Think of it as a peace offering with financial perks.

💸 Why it’s smart:

• Caps your liability to a few years (usually 3–4)

• Reduces or eliminates penalties

• Helps you start fresh, with protection

📌 Use a VDA when:

• It makes financial sense. For some businesses, they may not have enough in penalties to justify the time/cost of a VDA. Usually if you have a lot of dollars due OR are going to have to do backfilings for a lot of periods, a VDA may be a good option to explore.

• You want to fix things quietly and strategically

• The state hasn’t contacted you yet

• You aren’t registered yet. Once registered with the state, you’ll likely lose the ability to do a standard Voluntary Disclosure.

❗ Once the state contacts you, it’s too late for a VDA. That’s why it’s called “voluntary.”

🚨 Common Pitfalls to Watch Out For

❌ Timing on registration – Signing up too early can trigger obligations you weren’t ready for. Signing up too late can mean penalties and fines. So make sure you know exactly where/when/why to register!
❌ Filing blind – Backfiling without clean records or expert review can do more harm than good.
❌ Missing the VDA window – Wait too long, and the state might find you first, eliminating your chance for reduced penalties.

✅ Final Takeaways

✔ Register when the state wants you to
✔ Backfile with care and precision
✔ Consider a VDA to reduce risk and costs
✔ Talk to an expert before making any moves

💥 Bottom line? Don’t wait for tax trouble to snowball. Your future self will thank you.