When you discover you owe back taxes for US sales tax, or realize you’ve exceeded economic nexus but never registered, there are three main strategies to fix the issue and protect your business. Below is an easy-to-read overview of each option, plus how Commenda can help.
1. Voluntary Disclosure Agreements (VDAs)
What It Is
A Voluntary Disclosure Agreement (VDA) is a formal arrangement with a state that lets you come clean about unreported taxes. You commit to paying a portion of past taxes, and in return, the state typically reduces or waives penalties (and sometimes interest).
Key Benefits
- Limited Lookback: Only pay taxes for a set number of past years, often three or four, rather than going all the way back to when you first started selling.
- Waived Penalties: States may drop penalties entirely and sometimes reduce interest.
- No Surprise Audits: You get to “self-audit,” so there’s less risk of a full-blown state examination.
- Payment Plans: Many states let you pay over time rather than in one lump sum.
Ideal If
- You want to get fully compliant and reduce penalties.
- You prefer a formal, clean slate with each state.
2. “Late” Registration (Registering Going Forward)
What It Is
You simply register now and begin collecting/remitting tax. You do not disclose prior activity on the registration form.
Key Benefits
- Go-Forward Compliance: You stop the problem from growing because you start collecting tax going forward.
- Minimal Immediate Costs: You avoid paying back taxes right away.
Points to Consider
- Registration forms typically ask when you began selling in the state. Some businesses are tempted to list the “start date” as today.
- If a state uncovers that you sold in past periods without disclosing it, they can come after you for back taxes, interest, and penalties.
Ideal If
- You want to move forward collecting tax now, with minimal immediate impact on cash flow.
- You are aware of the risks if a state digs into your historical sales.
3. Restructure Using a New Entity
What It Is
You create a new subsidiary or separate legal entity to handle future US sales. The original entity keeps its past liabilities, but the new entity registers and collects tax going forward.
Key Benefits
- Fresh Start: The new entity’s liability begins the day it starts doing business and registers.
- Isolated Risk: Potentially keeps prior debt tied to the old entity, reducing visibility to auditors in the new one.
Points to Consider
- Successor liability rules vary by state. If authorities see that a “new entity” purchased assets or intellectual property from the old company, they might try to assert old tax debts.
- Proper structuring is essential to avoid states linking old debts to the new entity.
Ideal If
- You want to isolate historical liabilities and give the new business unit a clean compliance record.
- You have solid legal advice on how to set up the new entity to minimize the old debts carrying over.
The True Cost of Ignoring Unpaid Sales Tax
Not addressing unpaid sales tax can cripple your business in unexpected ways:
- Compounded Interest & Penalties: States charge 10-25% in penalties and interest compounds monthly.
- Business Registration Holds: You may be unable to renew business licenses, open bank accounts, or expand operations.
- Public Blacklists & Legal Actions: Some states publish delinquent taxpayer lists and may file legal claims against your business.
In 2022, Texas published a list of 3,500+ eCommerce businesses owing back taxes, leading to asset seizures and frozen bank accounts.
Final Takeaway: Act Before States Find You
The U.S. is getting more aggressive in collecting unpaid sales tax. Ignoring the issue won’t make it go away, but acting now can minimize penalties, protect your business, and keep you compliant.
Next Steps:
– Run a nexus check to see where you owe tax.
– Decide on VDA, late registration, or restructuring.
– Get expert help to negotiate the best outcome.
How Commenda Can Help
- Nexus Analysis & Strategy: We identify where you owe back taxes or have triggered economic nexus, then equip you with the knowledge to choose the best path forward for your business—VDA, late registration, or restructuring.
- Expert Negotiation: Our network of tax specialists and former state officials can explore ways to reduce or even eliminate back-tax obligations in specific states.
- Compliance Technology & Support: We’ll help you register in each state, automate filings, and stay ahead of deadlines so you remain compliant.
- Customized Solutions: Depending on your budget, risk tolerance, and growth plans, we tailor an approach that fits your unique situation.
Ready to Get Started?
Stop worrying about potential audits and mounting liabilities. Contact Commenda for a straightforward path to compliance
