Many SaaS companies learn about economic nexus after they have already crossed thresholds in several states. Each year unregistered adds tax that was never collected from customers, plus penalties and interest. A voluntary disclosure agreement (VDA) is the standard way to come forward on better terms than waiting for a state to find you.
What a VDA usually offers
| Term | Typical outcome |
|---|---|
| Look-back period | Limited, often three or four years, instead of every year since nexus began |
| Penalties | Waived in most programs |
| Interest | Usually still due, though some states reduce it |
| Criminal referral | Not pursued for good-faith disclosures |
| Taxes actually collected from customers | Must be remitted in full, with interest |
Texas, for example, waives penalties and interest under its program except interest on tax that was collected and not remitted.
Eligibility
Programs generally require that:
- The state has not contacted the company about the tax
- The company is not already registered for that tax
- The company registers and files going forward
- The disclosure is complete
Single state or multistate
Companies can apply state by state, or through the Multistate Tax Commission's National Nexus Program, which coordinates disclosures with participating states through a single point of contact.
The steps in order
- Nexus study: sales by state by year, compared with each state's economic nexus threshold and taxability rules for SaaS.
- Exposure estimate: taxable sales × rate for each year in the expected look-back, plus interest.
- Decide where to disclose: states with material exposure; for small exposures, registering prospectively may be enough.
- Anonymous submission through a representative where allowed.
- Agreement: the state proposes terms; the company signs.
- Pay and file back returns for the look-back period.
- Register and collect going forward, with tax calculation in the billing system.
A worked exposure estimate
A company crossed a state's $100,000 threshold three years ago. SaaS is taxable there at a combined average rate of 6.5%.
| Year | Taxable sales into the state | Tax |
|---|---|---|
| Year 1 (after crossing) | $180,000 | $11,700 |
| Year 2 | $260,000 | $16,900 |
| Year 3 | $340,000 | $22,100 |
| Total | $50,700 plus interest |
Without a VDA, penalties could add a significant percentage on top, and the look-back could run longer.
Recovering tax from customers
Some companies ask large customers to pay or self-assess the tax for past periods, sometimes using exemption or direct-pay certificates. It is a commercial conversation that works best with a clear schedule of amounts by invoice.
After the agreement
The VDA only fixes the past. Going forward, the billing system must calculate tax by customer location and taxability, returns must be filed on each state's schedule, and exemption certificates must be kept on file.
We run the nexus study, estimate exposure, manage disclosures through a representative, and set up collection and filing going forward.
Sources
- Multistate Tax Commission, National Nexus Program
- Texas Comptroller, Voluntary Disclosure Program (Publication 96-576)
- Streamlined Sales Tax Governing Board
- South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018) (Cornell LII)
Questions founders ask
Can a company stay anonymous when applying?
Many states accept an initial anonymous request through a representative, revealing the company's identity only once terms are agreed.
What if the state has already contacted the company?
Most programs require that the state has not already contacted the company about the tax. After contact, the voluntary disclosure route is usually closed.
