Voluntary Disclosure Agreement for Unpaid Sales Tax: How FL, GA, NC, PA, and AZ Waive Back Penalties Before You're Audited

What a VDA Is — and Why States Offer Them

A Voluntary Disclosure Agreement is a deal: you admit you owe back taxes, the state waives penalties and limits how far back it can look. States offer VDAs because audit enforcement is expensive and slow. Every dollar collected through voluntary disclosure costs the state a fraction of what an audit costs to administer. For sellers, VDAs turn an open-ended liability into a fixed, negotiated number.

The math makes the case. Consider a seller who crossed Florida's $100,000 economic nexus threshold three years ago and never registered. If Florida audits them, the state can look back up to 7 years, assess the full uncollected tax, add penalties of up to 50%, and charge 12% annual interest. Under a VDA, the lookback is capped at 3 years, penalties are waived entirely, and the seller pays only the tax owed plus interest. On $15,000 in uncollected tax, the difference between audit and VDA could be $8,000-$12,000 in avoided penalties alone.

The MTC Multistate VDA Program

The Multistate Tax Commission (MTC) operates a centralized Multistate VDA Program that simplifies the process for sellers with exposure in multiple states. Instead of negotiating separately with each state, your representative submits a single anonymous application to the MTC, which then coordinates with all participating states simultaneously.

Of the five Tier A states, Florida, Georgia, North Carolina, and Pennsylvania participate in the MTC program. Arizona does not — you must apply directly to the Arizona Department of Revenue for a VDA covering unpaid TPT.

How the MTC Process Works

Your CPA or tax attorney contacts the MTC and submits an anonymous application describing the business type, the states involved, the nature of the nexus-creating activity, and an estimate of the tax exposure. The MTC forwards the anonymized information to each participating state. Each state reviews independently and responds with its terms — lookback period, interest treatment, payment schedule. Once all states have agreed, your identity is disclosed and the formal agreements are executed. The entire process typically takes 60-90 days from initial application to signed agreements.

Florida: 3-Year Lookback, Full Interest

Florida's VDA program limits the lookback period to 3 years from the date of application. Given that Florida's standard audit lookback extends to 7 years under statute 95.091, the VDA effectively eliminates 4 years of potential exposure. Penalties — which run up to 50% of uncollected tax under Florida's penalty structure — are waived in full.

However, Florida does not waive interest under VDA. The state charges its standard 12% annual rate on the lookback tax liability. On a $20,000 tax balance spanning 3 years, that's roughly $3,600-$7,200 in interest depending on when the liability accrued. Even with full interest, the VDA saves the 50% penalty cap ($10,000) — so the net benefit is substantial.

Florida participates in the MTC Multistate VDA Program. You can also apply directly through the Florida Department of Revenue, though the MTC route is preferred if you have exposure in multiple states.

Georgia: 3-Year Lookback, Interest Required

Georgia's VDA terms mirror Florida's in structure: a 3-year lookback with full penalty waiver but interest still required. The standard audit lookback in Georgia extends to 7 years. Penalties that would otherwise accrue at 5% per month up to 25% under Georgia's penalty schedule are waived entirely.

Georgia's interest rate is currently 1% per month (12% annually) on unpaid tax. The state does not negotiate interest waivers under VDA — interest accrues from the original due date of each unfiled return through the date of payment. Georgia participates in the MTC program and also accepts direct VDA applications through the Georgia Department of Revenue's Voluntary Disclosure Unit.

For sellers who crossed Georgia's $100,000 economic nexus threshold in years past, the VDA is especially valuable because Georgia's audit division has become more aggressive about data-matching marketplace and payment processor records to identify non-filers.

North Carolina: 3-4 Year Lookback, Interest Required

North Carolina's VDA program offers a lookback period of 3 to 4 years depending on the specifics of the case. The NC Department of Revenue has discretion to set the lookback within this range based on the nature and duration of the noncompliance. The standard audit lookback is 7 years for non-filers. North Carolina's penalties of 5% per month (up to 25%) are waived under VDA.

Interest is not waived. North Carolina charges interest at a variable rate set quarterly, typically around 5-7% annually — lower than Florida or Georgia's rates. The comparatively lower interest rate makes North Carolina VDAs less costly in absolute terms for the same underlying tax balance.

North Carolina participates in the MTC program. The state also accepts direct VDA applications through the NCDOR. Sellers who crossed the $100,000 North Carolina economic nexus threshold should note that North Carolina eliminated its 200-transaction prong in 2024, so the revenue threshold is the sole trigger for current and future periods.

Pennsylvania: 3-Year Lookback, Interest Negotiable

Pennsylvania offers one of the most favorable VDA programs among the Tier A states. The lookback is capped at 3 years, and while Pennsylvania's standard penalties of 5% per month (up to 25%) are waived, the state also has a track record of negotiating interest waivers or reductions on a case-by-case basis.

Pennsylvania's standard interest rate is 3% above the federal short-term rate, which has recently been in the 7-9% range. In VDA negotiations, the PA Department of Revenue has been known to waive interest partially — particularly for sellers with smaller liabilities or those who come forward proactively and quickly. Full interest waivers are rare but not unheard of.

Pennsylvania participates in the MTC Multistate VDA Program. Combined with its prospective-only registration approach, Pennsylvania is the most forgiving Tier A state for sellers who discover nexus obligations late.

Arizona: 4-Year Lookback, Interest Negotiable (Direct Application Only)

Arizona's VDA program covers Transaction Privilege Tax (TPT) obligations and operates independently of the MTC program. You must apply directly to the Arizona Department of Revenue (ADOR). The lookback period is typically 4 years — aligned with Arizona's standard statute of limitations for TPT assessments.

Penalties are waived in full under Arizona's VDA program. Interest treatment is negotiable — the ADOR has discretion to waive or reduce interest, and outcomes vary by case. Sellers with smaller liabilities and shorter periods of noncompliance tend to receive more favorable interest treatment. Arizona's standard interest rate is currently around 5% annually on unpaid TPT.

For sellers who crossed the $100,000 Arizona TPT threshold without registering, the VDA also resolves the TPT licensing issue — the agreement includes forward registration as part of the settlement terms. Your TPT license application is processed concurrently with the VDA execution.

VDA vs. Audit: State-by-State Comparison

The table below compares what you face under a VDA versus what happens if the state audits you first. The financial difference is substantial in every state.

Who Is Eligible for a VDA — and Who Is Disqualified

Eligibility for a VDA hinges on one principle: you must come forward before the state comes to you. If the state has already initiated contact about the specific tax type, you're disqualified. The exact disqualifiers vary slightly by state but follow a consistent pattern.

Universal Disqualifiers (All 5 States)

• Already under audit: If the state has issued a notice of audit or examination for the tax type in question, VDA eligibility is lost.
• Already contacted by the state: Receiving a nexus questionnaire, a notice of assessment, or any official correspondence asking about your tax obligations in that state disqualifies you.
• Previously registered: If you were previously registered for sales tax (or TPT in Arizona) in the state and let your registration lapse while continuing to sell, most states will not extend VDA treatment — you're treated as a delinquent filer, not a new discovery.
• Fraud or willful evasion: If the state determines that noncompliance was willful tax evasion rather than an oversight or ignorance of nexus obligations, VDA eligibility is typically denied.

Key Eligibility Point

Disqualification is state-specific. Being contacted by Florida does not disqualify you from filing VDAs in Georgia, North Carolina, Pennsylvania, or Arizona. If you receive a nexus questionnaire from one state, it should actually accelerate your VDA filings in the other states — the clock is ticking on whether those states will reach out next.

Step-by-Step: How to File a VDA Through a Representative

The VDA process is designed to protect your anonymity until terms are agreed. Here's the standard process, whether you go through the MTC or directly to a state.

What VDAs Do Not Cover

VDAs resolve past noncompliance for the specific tax type disclosed. They do not provide blanket protection.

• Other tax types: A sales tax VDA does not cover income tax, franchise tax, or other state-level obligations. If you have nexus for sales tax, you may also have income tax nexus — that requires a separate disclosure or VDA.
• Future noncompliance: The VDA agreement requires you to remain in compliance going forward. If you stop filing or collecting after executing the VDA, the state can void the agreement and reassess penalties on the original lookback period.
• Marketplace facilitator obligations: If part of your sales were through marketplace facilitators that collected on your behalf, those sales are typically excluded from the VDA liability calculation — but you need proper documentation to prove the marketplace remitted.
• Customer refunds: A VDA does not authorize you to go back and collect uncollected tax from past customers. The lookback liability comes out of your pocket.

When to File: The Urgency Calculation

Every month you delay a VDA, two things happen: your liability grows (more uncollected tax accrues) and your risk of losing eligibility increases (states are getting better at identifying non-compliant remote sellers through data matching with marketplaces and payment processors).

The ideal time to file is as soon as you realize you have past-due obligations. If you crossed the economic nexus threshold in any state more than one filing period ago and have not registered, a VDA should be on your immediate action list. The process takes 60-90 days through the MTC, so delays compound quickly.

The worst outcome is discovering you need a VDA because an audit notice just arrived. At that point, you've lost the penalty waiver, the limited lookback, and any interest negotiation leverage. The difference on a $25,000 tax liability: roughly $6,000-$15,000 more in penalties and interest under audit than under VDA.