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For growing businesses, state tax exposure often develops gradually. Filing and payment obligations can emerge before leadership realizes they exist, and if left unaddressed, a compliance gap can turn into a multi-year liability that affects financial reporting, cash flow, transaction readiness, and overall business value.
These obligations may involve sales and use tax, income tax, franchise tax, or gross receipts tax across multiple jurisdictions. A voluntary disclosure agreement (VDA) can help businesses proactively resolve certain historical tax liabilities before a state taxing authority initiates contact.
A VDA is an agreement between a taxpayer and a state taxing authority that allows the business to voluntarily disclose past tax exposure and come into compliance under generally more favorable terms than those available during an audit.
Common benefits may include:
Most importantly, a VDA can help convert uncertain, open-ended exposure into a defined liability that leadership can address and move beyond.
State tax exposure is rarely the result of intentionally avoiding compliance. More often, business growth outpaces tax processes.
Common triggers include:
As businesses grow, filing obligations can emerge before internal processes are updated to address them.
Every situation is different, but several common indicators typically signal it’s time to evaluate a VDA.
Acting before a state taxing authority initiates contact preserves the most options. Once an audit or inquiry begins, VDA eligibility is typically off the table.
While a VDA can be an effective way to address historical state tax exposure, it is not the right solution for every situation.
A VDA may not be the best solution when:
The right approach depends on several factors, including the materiality of the liability, the number of years involved, state contact status, and broader business objectives.
Not sure whether a VDA is the right path? Download our decision tree to evaluate your situation and identify potential next steps.
While requirements vary by jurisdiction, a VDA generally includes:
To meet each state's unique rules and program requirements, businesses should prioritize proactive coordination and careful planning.
Resolving past exposure is only half the work. To keep pace with growth and reduce the risk of future issues, businesses should build ongoing SALT compliance into daily operations by:
Ongoing monitoring turns compliance from a reactive fix into a repeatable process that scales with the business.
Elliott Davis helps businesses evaluate SALT exposure, assess VDA eligibility, quantify potential liabilities, and develop practical remediation strategies. Whether the issue involves sales and use tax, income tax, franchise tax, or multi-state expansion, our professionals can help organizations understand their obligations and evaluate available options.
If your company has expanded into new states, completed an acquisition, added remote employees, or identified potential filing gaps, now may be the time to assess your exposure. Early action can help reduce uncertainty, limit penalties, support transaction readiness, and establish a stronger foundation for long-term compliance.
Contact Elliott Davis to get started.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
