Michigan Voluntary Disclosure Program (VDP) / Voluntary Disclosure Agreement (VDA) for Sales Tax

Businesses selling into Michigan that failed to register, collect, or remit sales tax often face significant exposure. From unfiled returns to uncollected liabilities, the risks can escalate quickly once the state’s Department of Treasury takes notice.

Fortunately, the Michigan Voluntary Disclosure Program (VDP), also known as a Voluntary Disclosure Agreement (VDA), provides a path for businesses to resolve past sales tax liabilities on favorable terms.

This guide explains how the Michigan VDP works, who qualifies, its benefits, risks, and step-by-step process, with practical insights from a sales tax compliance perspective.

What is the Michigan Voluntary Disclosure Program (VDP)?

The Michigan Voluntary Disclosure Program (VDP) is a formal initiative offered by the Michigan Department of Treasury that encourages businesses with unreported tax liabilities, including sales and use tax, to come forward voluntarily.

By applying under the program, businesses can:

• Limit the lookback period for back taxes owed.
  
• Secure penalty waivers.
  
• Resolve past liabilities without fear of criminal enforcement.
  

In short: a Michigan VDA for sales tax offers companies a clean slate while reducing the financial and legal impact of noncompliance.

Why Does Michigan Offer a VDA / VDP?

Like other states, Michigan recognizes that noncompliance often occurs unintentionally. Some common reasons include:

• Misunderstanding of economic nexus thresholds after the Wayfair decision.
  
• Confusion about which products or services are taxable in Michigan.
  
• Not realizing that remote sellers must collect Michigan sales tax.
  
• Failure to update compliance processes after expanding into e-commerce or marketplace sales.
  
• Lack of awareness about use tax obligations for purchases where sales tax wasn’t collected.
  

Instead of relying solely on audits, the state offers the VDP to encourage voluntary compliance and recover tax revenue efficiently.

Key Features of the Michigan Sales Tax VDA / VDP

1. Eligibility

To qualify:

• The business must not have been previously contacted by the Michigan Department of Treasury regarding sales tax obligations.
  
• Disclosure must be voluntary, once an audit notice or inquiry is issued, eligibility is lost.
  
• The VDP applies to sales and use tax as well as other state-administered taxes.
  

2. Lookback Period

• Standard Michigan audits may cover 7 years or more.
  
• Under the VDP, the lookback is generally reduced to 4 years.
  
• This can save significant amounts if the company has operated in Michigan for many years without compliance.
  

3. Penalty Relief

• Penalties are waived under the VDP agreement.
  
• Interest on unpaid taxes must still be paid.
  

4. Confidentiality

• Businesses can apply through a third-party representative (e.g., Commenda) without initially disclosing their identity.
  
• Identity is revealed only once agreement terms are finalized.
  

Benefits of the Michigan Voluntary Disclosure Agreement (VDA)

Participating in the Michigan VDP delivers several advantages:

• Lower Costs: Reduced lookback means paying fewer years of tax.
  
• Penalty Waiver: Avoid costly penalty assessments, often 25% or more of liability.
  
• Legal Protection: Disclosure eliminates risk of criminal enforcement.
  
• Audit Closure: Once obligations are fulfilled, prior periods are considered resolved.
  
• Investor Readiness: Being compliant helps attract funding and avoid issues in due diligence.
  

Risks of Not Using the Michigan VDP

Failing to act can create costly consequences:

• Extended Liability: Audits may reach back 7–10 years.
  
• Hefty Penalties & Interest: Liability can balloon far beyond original unpaid taxes.
  
• Enforcement Actions: Liens, garnishments, and asset seizures may occur.
  
• Lost Opportunity: Once the Treasury initiates contact, VDP relief is no longer available.
  
• Reputation Damage: Noncompliance can delay funding or expansion plans.
  

The Michigan VDP Process for Sales Tax

Step 1: Anonymous Inquiry

A representative contacts the Treasury to describe the taxpayer’s situation without revealing the business name.

Step 2: Eligibility Review

The Treasury determines whether the taxpayer qualifies for the VDP.

Step 3: Agreement Terms

Negotiation of the lookback period, penalty waiver, and disclosure obligations.

Step 4: Signing the Agreement

The taxpayer reveals their identity, and the Voluntary Disclosure Agreement (VDA) is signed.

Step 5: Filing & Payment

Back returns for the agreed lookback period are filed, and tax plus interest is paid.

Step 6: Future Compliance

The business must register and remain compliant with Michigan sales tax requirements moving forward.

Who Should Consider the Michigan Sales Tax VDA / VDP?

• Remote sellers exceeding Michigan’s economic nexus threshold ($100,000 in sales or 200+ transactions).
  
• E-commerce businesses shipping to Michigan customers.
  
• SaaS companies and digital service providers with taxable offerings.
  
• Out-of-state companies with employees, inventory, or contractors in Michigan.
  
• Foreign businesses entering the U.S. market without realizing nexus exposure.
  
• Companies preparing for M&A or investment rounds where compliance checks are strict.
  

Why Act Now?

Michigan is actively identifying noncompliant businesses through:

• Data matching with federal IRS records.
  
• Information sharing with other states.
  
• Marketplace facilitator reports.
  
• Targeted industry audits.
  

The longer a company waits, the greater the risk Michigan initiates contact, at which point the VDP option is gone.

How Experts Help with Michigan VDAs

Navigating a VDP requires more than filing paperwork. It involves strategy, negotiation, and compliance setup. Mistakes can cost businesses the very benefits they’re seeking.

An experienced compliance partner helps with:

• Exposure analysis, determining sales tax owed and nexus triggers.
  
• Anonymous representation, protecting identity during negotiation.
  
• Negotiating terms, securing reduced lookbacks and penalty waivers.
  
• Accurate filings, ensuring back returns are correct and complete.
  
• Future compliance, registering and managing ongoing obligations.
  

Why Work with Commenda for Michigan VDAs

At Commenda, we specialize in multi-state sales tax compliance for cross-border and domestic businesses. We’ve helped companies across industries resolve historic liabilities and secure clean compliance moving forward.

With Commenda, you get:

• Confidential initial contact with the Michigan Treasury.
  
• Expert negotiation of VDA terms.
  
• End-to-end filing support for back returns.
  
• Compliance systems for future Michigan sales tax registration and filing.
  
• Cross-border coverage, ensuring multi-state exposures are addressed holistically.
  

If your business has unreported Michigan sales tax liabilities, don’t wait for the Treasury to reach out first.
Talk to a Commenda VDA expert today and resolve your exposure through the Michigan Voluntary Disclosure Program.

FAQs on the Michigan Voluntary Disclosure Program

Q1: Does the Michigan VDP apply to taxes other than sales tax?
Yes, but this guide focuses on sales and use tax. It also applies to corporate income and other state taxes.

Q2: What is the typical lookback under the VDP?
Usually 4 years, versus 7+ under audit.

Q3: Can penalties really be waived?
Yes, penalties are generally waived in full under the agreement. Interest, however, must be paid.

Q4: Can I remain anonymous during the process?
Yes. Representatives like Commenda can keep your identity confidential until terms are negotiated.

Q5: What happens if I don’t apply and Michigan contacts me first?
You lose eligibility for the VDP, and the state may impose the full lookback period plus penalties and interest.