Businesses sometimes discover that they should have collected sales tax in prior years but did not. When this occurs, voluntary disclosure agreements may allow companies to resolve tax liabilities before a state audit begins.
Voluntary disclosure programs allow businesses to report unpaid tax obligations proactively. In many cases, states offer benefits such as reduced penalties and limited lookback periods.
A voluntary disclosure checklist helps businesses evaluate whether a voluntary disclosure agreement may be appropriate and prepares them for the disclosure process. If you are unfamiliar with voluntary disclosure agreements, begin with the guide Sales Tax Voluntary Disclosure Agreements Explained.
Step 1: Identify States Where Nexus Exists
The first step in evaluating voluntary disclosure is identifying states where nexus existed during prior periods.
Nexus may arise through:
- Economic nexus thresholds
- Inventory stored in warehouses
- Employees located in another state
- Marketplace or ecommerce sales activity
Businesses must determine which states may require disclosure. To review nexus thresholds across states, visit Economic Nexus by State.
Step 2: Analyze Historical Sales Activity
Businesses should review historical sales records to determine revenue generated within each state.
Important metrics include:
- Revenue by state
- Transaction counts within each jurisdiction
- Marketplace and ecommerce sales
- Customer billing or shipping addresses
This information helps determine the scope of potential tax exposure. Businesses can estimate exposure using the sales tax exposure calculator.
Step 3: Determine Nexus Start Dates
Once sales data is analyzed, businesses must determine when nexus was first created.
Nexus start dates help determine the potential lookback period for unpaid taxes.
Identifying these dates allows businesses to estimate potential liabilities before submitting a voluntary disclosure request.
Step 4: Estimate Historical Tax Liability
Businesses should estimate the amount of unpaid sales tax for prior periods.
This calculation typically involves:
- Identifying taxable transactions
- Applying historical tax rates
- Estimating penalties and interest
More details about tax calculations are explained in How to Estimate Historical Sales Tax Exposure.
Step 5: Confirm Eligibility for Voluntary Disclosure
Voluntary disclosure programs typically apply only when the state has not already contacted the business regarding compliance issues.
Businesses may not qualify for voluntary disclosure if:
- A state audit has already begun
- The business has already registered for sales tax
- The state has issued enforcement notices
Businesses should confirm eligibility before proceeding with disclosure.
Step 6: Prepare Disclosure Documentation
Businesses must prepare documentation supporting voluntary disclosure applications.
Common documentation includes:
- Historical sales data
- Estimated tax liability calculations
- Business registration information
- Descriptions of business activities
Providing accurate documentation helps states evaluate disclosure requests efficiently.
Step 7: Submit Voluntary Disclosure Application
Once documentation is prepared, businesses may submit voluntary disclosure applications to state tax authorities.
The application typically outlines:
- The business activities creating nexus
- Estimated tax liability
- The proposed compliance plan moving forward
States review the application and determine whether to approve the voluntary disclosure request.
Step 8: Register for Sales Tax Permits
After voluntary disclosure agreements are accepted, businesses must register for sales tax in the affected states.
Registration allows businesses to begin collecting sales tax and filing returns going forward. More details about registration are explained in How to Register for Sales Tax.
Step 9: File Historical Tax Returns
Businesses participating in voluntary disclosure agreements may be required to file tax returns for the agreed lookback period. These filings report taxable sales and calculate the amount of tax owed.
Step 10: Implement Ongoing Compliance
After resolving historical liabilities, businesses should implement systems to ensure ongoing compliance.
Important steps include:
- Monitoring nexus thresholds regularly
- Tracking revenue by state
- Applying correct tax rates during transactions
- Maintaining accurate tax records
Automation tools often help businesses maintain compliance across multiple states. More details about automation tools are explained in How Sales Tax Automation Software Works.
Why a Voluntary Disclosure Checklist Matters
Voluntary disclosure programs provide businesses with an opportunity to resolve tax liabilities before enforcement actions occur.
A structured checklist helps companies evaluate eligibility, prepare documentation, and complete the disclosure process efficiently.
Businesses that address exposure proactively often reduce penalties and resolve compliance issues more effectively.
Related Sales Tax Resources
If you are evaluating sales tax obligations for your business, you can start with the Economic Nexus Guide and review requirements in the Economic Nexus by State reference.
Businesses assessing potential liability often begin with a Sales Tax Exposure Analysis or estimate exposure using the Sales Tax Exposure Calculator.
If you operate across multiple states, the Economic Nexus Tracker can help monitor when thresholds may be triggered.
For a structured overview of potential liabilities, businesses may review the Sales Tax Risk Report.
You can review a step-by-step Sales Tax Exposure Checklist to understand where risks may exist.
If you suspect historical exposure, see How to Identify Sales Tax Exposure and learn how to resolve issues in How to Fix Past Sales Tax Exposure.
For broader operational guidance, you can also explore the Founder Playbooks.
FAQs
What is a voluntary disclosure checklist?
It is a process businesses follow to evaluate and prepare for voluntary disclosure agreements.
Why use voluntary disclosure programs?
These programs allow businesses to resolve unpaid tax liabilities before audits occur.
Can businesses use voluntary disclosure after an audit starts?
No most programs require that the state has not yet contacted the business.
Do voluntary disclosure agreements eliminate taxes owed?
No businesses must still pay unpaid tax balances but penalties may be reduced.
How can businesses estimate potential exposure?
Businesses can analyze historical sales data or use automated tools to estimate liabilities.
