Voluntary Disclosure Agreements and Mitigation Strategies

Compliance with state and local taxes can be challenging, but it isn’t something that can be ignored. A business that fails to comply with income, franchise, gross receipts, sales and use, property, or other taxes can face unexpected tax liabilities and penalties.

Nexus Standards

Compliance challenges often revolve around different and constantly changing state nexus standards, which are the determining factor in whether a state can impose tax on a business. Nexus standards can vary based on tax type and other factors.

Potential triggers for nexus can include the following:

  • Sales and customer service–related activities
  • Mobile workforce
  • Property, such as inventory located in a fulfillment center
  • Economic presence—more than $500,000 of sales in a state, for example

Several states also treat businesses that receive website referrals in exchange for compensation from third parties located in the state as having established click-through nexus.

Voluntary Disclosure Agreements

Through a nexus and taxability study, a business can determine whether it might be at risk for unpaid taxes. Many states offer voluntary disclosure programs that reduce or eliminate penalties or interest on past state or local tax liabilities. These programs often limit the number of years a state may look back in determining what taxes are due.

It’s in a company’s best interest to be proactive and use a voluntary disclosure agreement (VDA) to resolve any delinquency. A VDA is an effective mechanism for a business to declare its past state or local tax obligations. In doing so, it can reduce the risk of future audit assessments, bring down the cost of doing business and eliminate contingent liabilities from your financial statements.

In addition to VDAs, a business may benefit from other tax mitigation strategies. Depending on the taxing jurisdiction—and a taxpayer’s specific facts and circumstances—states may offer amnesty programs or negotiated closing agreements. Further, a business may be able to reduce sales tax liability by collecting exemption certificates from customers or documenting that customers have already paid use tax on products sold.

Our Approach

The experienced state and local tax professionals at Moss Adams offer nexus and taxability analysis and planning services to help meet your company’s state and local tax filing obligations.

We can perform a thorough nexus analysis with respect to your business, particular operations, or a specific transaction. Additionally, we can help manage your company’s VDAs from the initial discovery stage through agency negotiations to final agreement and resolution. We can also provide strategies and solutions to mitigate future risk.

Primary Contacts