Key takeaways

• A VDA has five core phases: application, agreement, registration, historical returns, payment.
• Most delays happen because data is missing or not organized for state review.
• Preparing early keeps the process on schedule and helps you avoid extensions and added risk.

This guide walks through the voluntary disclosure agreement (VDA) process step-by-step so you know what to prepare before the state reviews your disclosure.

What does VDA process involve? Step-by-step breakdown.

Every state structures VDAs slightly differently, but the steps are generally the same. Here is the standard workflow I use to help clients apply for a VDA.

1. Application

Most states allow an anonymous application, which helps protect eligibility while we confirm whether the state will accept the disclosure. The application includes estimated liability, dates of nexus, and a high-level summary of the company’s circumstances surrounding why they are applying for a VDA.

One common issue I see at this stage is incomplete or inconsistent facts. Sometimes the taxpayer may give information that doesn’t align with the overall situation, which can trigger a red flag and a lengthy questionnaire from the state before acceptance into the program.

2. Agreement

If the state accepts the application, it issues a draft agreement that outlines the lookback period, penalty abatement, and any conditions. This is when a power of attorney is typically submitted.

Some states negotiate terms, based on the the taxpayer’s facts, such as a reduced lookback period due to inactivity before the typical lookback period starts. Others simply approve the agreement once the disclosure is signed.

3. Registration

Registration happens after the agreement stage, not before in most cases. Registering too early can remove eligibility in certain states, so sequencing is important.

States may require basic business information to register, such as:

• FEIN
• legal business name
• ownership information
• responsible party details

4. Historical returns

Once registered, the state authorizes you to file historical returns for the agreed lookback period. This can be as simple as uploading an Excel schedule or as complex as preparing full monthly returns for every period. California and New York, for example, often require full returns. Ohio and Tennessee may accept a spreadsheet instead.

5. Payment

At the time of return submission, states expect payment of tax plus interest. Penalties are typically waived, but interest usually remains. Clients are often surprised by the timing here, so I always confirm funding availability early.

If clients don’t have the funds right away, most states will allow instalment payments, but interest will still accrue.

Once the payment clears, the VDA closes and ongoing compliance begins.

Documents you need for the VDA Process

The VDA process moves faster when the initial data is complete and consistent from the start. These are the documents I typically request at the beginning of the process, even if we don’t need them until later.

• Estimated tax liability, which can be produced by our nexus study
• Economic Nexus determination and start date, which can be produced by our nexus study
• Exempt sales (wholesale, government, resale, etc.)
• Physical presence types, locations, and start dates
• Description of products or services
• Whether marketplace facilitators were involved
• Dates of first sales in each state
• Legal entity information (FEIN, incorporation date, officers)
• A statement detailing contact with the state for the tax type in question.
• Whether the company has collected, but not remitted tax to the state

The application phase is the quickest part of the process in most cases. But, that doesn’t mean it isn’t facts centered.

Supporting documentation: registration details and power of attorney

Once the application is accepted, states require additional supporting documentation to confirm the business identity and authorize the representative.

Typical supporting documents required for a VDA application include:

• FEIN and legal name
• entity type and formation date
• officer or owner details
• power of attorney (POA)

Some states only need a standard POA. Others require notarization or additional disclosures. New York, for example, has more detailed POA instructions than most states.

What you need to file historical returns

Different states require different formats for historical filings. Preparing these early keeps the process moving. Most delays happen here. Businesses often think they have clean data until we pull the numbers by state or by month.

You’ll need:

• Taxable sales by city and state,
• Exempt sales by city and state, usually with an exemption certificate or explanation on why the product or service is exempt
• If tax was collected, and if so how much

Common examples:

• California: full monthly returns for the entire lookback period.
• Washington: asks for customer names, their addresses, and type of tax.
• Tennessee or Ohio: will often accept a consolidated spreadsheet by month.

Understanding these differences prevents rework and keeps the state from rejecting the filing. Its always better to provide more detail than less in the VDA process. We can always delete rows and columns, but it’s sometimes more difficult to pull different information for each state.

Other ways to prepare your business for the VDA process

These items won’t show up on each state’s VDA checklist, but in my experience they typically matter just as much as the application itself.

Funding for tax and interest

You must be prepared to pay tax plus interest at the end of the negotiation. Clients often underestimate this amount because they’ve never calculated exposure across all states. I always run a preliminary estimate before we proceed.

Exemption certificates

If some customers are exempt, you may need to request resale or exemption certificates. Missing certificates can significantly inflate the tax due during the lookback.

Taxability review

Before filing any historical returns, I review the taxability of the products or services. SaaS and digital goods are especially complex because taxability changes by state. If a product is exempt in your home state, that does not mean it’s exempt everywhere.

How long does a VDA application take? (And what slows it down.)

Most VDAs take three to six months from application to closing.

However, several factors can extend the VDA process timeline:

• unclear or inconsistent sales data
• incomplete data, especially when the state requires ship-to zip codes
• state response times
• incomplete exemption documentation
• internal approval delays on the client side, typically when signatures and reviews are needed

For multi-state VDAs or complex industries like SaaS, timelines can be longer.

Should you prepare a VDA yourself?

You can prepare a VDA on your own, but I rarely recommend it. DIY filings almost always go wrong because the sequence is wrong — application, agreement, registration, and returns all have to happen in the correct order. One misstep can remove eligibility or extend the lookback period.

Here are the issues I see most often with DIY filings:

• registering too early in a state and losing eligibility
• misunderstanding how marketplace sales affect nexus
• overlooking a physical presence date that changes the lookback
• using the wrong filing format for historical returns
• submitting inconsistent data that prompts the state to delay the process

I regularly hear from businesses after they’ve already received a notice or registered out of sequence. Professional help ensures the application, disclosures, registration, and filings happen in the correct order.

Sales tax software makes VDA preparation smoother

Most of the VDA issues I handle start with missing visibility. Sales tax software can help you see exposure as it develops instead of discovering it years later.

For example, automating your sales tax compliance with TaxCloud can help by:

• tracking nexus thresholds
• flagging physical presence indicators
• separating marketplace and non-marketplace sales
• keeping historical sales clean and usable
• supporting ongoing compliance after the VDA closes

Software won’t replace a VDA when exposure already exists, but it makes the process clearer and prevents issues from returning.

Frequently asked questions

What documents do I need to apply for a VDA?

You need three to five years of sales by state, physical presence dates, exempt sales records, product taxability information, entity details, and any state-specific forms.

How far back do I need to provide data?

Most states require three to four years of historical data, though some may request five. This matches the typical lookback period for a VDA.

How long does a VDA take?

Usually three to six months. Complex exposures or multi-state VDAs may take longer.

How much does a VDA cost?

You will need to pay tax plus interest during the closing phase. Penalties are generally waived. Professional fees vary based on complexity and number of states.