A voluntary disclosure agreement (VDA) is one of the cleanest ways to resolve past sales tax exposure, but it only works if you avoid the mistakes that stall the process, increase liability, or eliminate eligibility.
Based on the VDAs I handle, these are the issues that create the biggest problems — and how to prevent them before you start.
1. Registering too early in a state
You have to start the VDA process before you register to collect sales tax in that state. If you register first, many states won’t let you into the program at all.
Business owners usually make this mistake when they realize they should have been collecting sales tax and rush to register to “fix the problem fast.” But in many states, registering first removes every VDA benefit. I’ve seen companies lose three to four years of penalty relief this way.
2. Applying for a VDA after a state has contacted you
Any outreach from a state — a nexus questionnaire, a “welcome” letter, or a basic inquiry — counts as contact. Once the state reaches you first, your disclosure is no longer voluntary, which means many VDA programs are off the table.
Most businesses assume the letter is routine and respond without thinking. Eligibility is often gone the moment the state initiates contact, shifting you into standard registration or audit management instead of a controlled disclosure.
3. Accidentally revealing your identity during an anonymous application
Anonymous applications are one of the biggest advantages of a VDA, but anonymity is easy to break. A document upload, spreadsheet metadata, or forwarded email can reveal your identity too early.
Once that happens, the state now knows who you are before terms are negotiated, which removes leverage and limits what the VDA can offer.
4. Submitting inconsistent or incomplete data
Missing or mismatched data is the number-one reason VDAs drag on for months. This error typically shows up in:
- sales totals that differ across reports
- not having sales by zip or city
- unclear splits between marketplace and non-marketplace sales
- incomplete exemption or product details
When the numbers don’t line up, the state pauses the VDA until everything is clarified. Each clarification cycle can add weeks, and multi-state VDAs compound the delay.
5. Untrue Facts
If you provide the state or your practitioner with intentionally false information, the VDA agreement will become null and void. While I have never seen this occur in my practice, the states take fraud very seriously and will cancel out the VDA agreement if the client intentionally misleads the state.
6. Not preparing exemption certificates early
If you have sales tax exempt customers, many states expect proof. When resale or exemption certificates are missing, the state assumes those sales were taxable and increases the amount owed.
Most businesses don’t realize how many certificates are missing until the VDA is in progress, which adds time and unnecessary tax.
7. Unclear nexus timelines
When you apply for a VDA, states will need to know:
- when you first established physical presence
- when you crossed economic nexus
- If you collected and did not remit tax
If any of these are unclear — even by a few months — the state won’t finalize the voluntary disclosure agreement. It slows the timeline and can change the lookback period.
8. Skipping the taxability review
Assuming your product is exempt everywhere because it’s exempt in your home state is one of the costliest mistakes. SaaS, digital goods, and hybrid services are taxed differently in almost every state.
A quick taxability check often reduces what businesses think they owe. Skipping it usually increases the liability.
9. Not separating marketplace and non-marketplace sales
Some states count marketplace sales toward nexus; others do not. Some require separate reporting; others combine them.
If you blur these together, you can easily overreport or underreport tax. The state will ask for corrected data, adding delays.
10. Expecting “fast” turnaround
A few states move quickly, but most VDAs take three to six months. Multi-state or SaaS disclosures can take longer.
A slow response doesn’t indicate a problem. It’s just the normal pace for most states.Expecting speed leads to frustration and miscommunication internally.
12. Stopping current filings during the VDA
Once you register in a state, you must file current-period returns while the VDA handles the past.
Pausing new filings creates a separate problem the VDA won’t fix. It adds penalties and complicates the compliance timeline.
13. Assuming a VDA eliminates all audit risk
A VDA protects prior periods before the lookback period.
It does not prevent:
- future audits
- audits of other tax types
- issues caused by missing certificates or incorrect ongoing filings
How to avoid VDA mistakes in the future
Most VDA problems I see come down to two things: the business didn’t know where it had exposure, or it waited too long to address it. Clear data and early sequencing solve most of that before it turns into a multi-year cleanup.
If you want fewer surprises, you need two things working together:
- a clear picture of your nexus, sales, taxability, and exposure
- a system that keeps you compliant going forward so you never need another VDA
That’s where platforms like TaxCloud make a meaningful difference. The software tracks thresholds in every state, separates marketplace and non-marketplace sales, flags physical presence early, and keeps historical data clean enough to use in a disclosure.
When exposure already exists, I handle the VDA. When the VDA closes, TaxCloud prevents the same issue from happening again.
If you’re untangling past sales tax obligations or think you may need a VDA, we can walk through your situation and confirm the best path before any deadlines or notices get in the way.
Talk to TaxCloud and we can review your nexus, determine your exposure, and help you decide whether a VDA is the right next step.