Post Wayfair Aftershocks — Voluntary Disclosure Agreements (VDA)

Post-Wayfair Aftershocks:  More Nexus Registrations Could Mean More Past SUT Liability Risk

When Wayfair increased the number of states in which businesses could now have SUT liability as a result of economic nexus, what it really did was increase dramatically the risks of tax liability in more states on both: (1) the business itself in the form of unbudgeted taxes, penalties and interest, as well as (2) the key persons who run the business or who are responsible for signing tax returns and other documents in the form of criminal and civil breach of fiduciary responsibility.

More Nexus Means More Registrations

Since businesses will now have nexus in more states, more businesses will be required to register in those states.  However, careful risk assessment of potential past liabilities in those states must be made before a business actually registers.  This is so because registration may open the door for states to seek to assess tax in prior years as well— potentially piling on more tax, interest and penalties. And to make matters worse, sales tax collection registration may also preclude those businesses from participating in voluntary disclosure agreement (VDA) programs that can be used to significantly soften the impact of tax liability in prior years.

Prior Years Liability–What Wayfair Did and Didn’t Say about Retroactivity

Good News:  The Wayfair court made it clear that it would not look favorably on any state attempts to impose retroactive application of any new or ”reanimated” past economic nexus law on businesses before the June 21, 2018, decision was reached.  And so far, the states have applied their economic nexus law collection start dates prospectively only.  So, for example, all 22 of the 33 states that currently have economic nexus laws (or what they consider equivalents) on the books have announced collection start dates that range prospectively from July-August 2018 through January 2019 and thereafter.

Bad News:   Prior to Wayfair, there were many other kinds of nexus statutes on the books of states that businesses had to comply with, e.g., “click-thru nexus”, “cookie nexus”, “affiliate nexus”, “marketplace nexus”, etc. These nexus rules were variations on the physical presence test under Quill.  However, post-Wayfair, those laws are still on the books and so far, remain effective for current as well as past years.  And there are two risks here.

  • The first risk is that these rules might have applied to the business in the past (whether it knew it, should have known it or not) and so in its zeal to register in states under Wayfair, a business may find itself liable for unexpected and unbudgeted past tax liability under these other nexus rules.
  • The second risk is that once a business registers, it may no longer be entitled to use a VDA to limit past liability exposure.

Voluntary Disclosure Agreements to Manage Past Liability

There are two basic types of VDAs:  individual state-sponsored VDAs and the multistate VDA.  Businesses that use either type of VDA are looking to avoid criminal responsibilities, avoid penalties and interest, and limit the so-called lookback period—how far back the revenue authorities can go for past assessments.  Most importantly, businesses want confidentiality—until a VDA is reached, businesses only want to be known to that state by its voluntary disclosure case number.  In the case of the multistate VDA, neither the VDA nor any of its terms is disclosed to any other state.  And the business does not have to disclose any information that would reveal its identity prior to execution of the VDA.

However, prior contact between a state and the taxpayer concerning sale tax, for example, disqualifies the business from participation in a VDA with respect to sale tax.  Contact includes filing a tax return, paying tax, or even receiving an inquiry form the state regarding sales tax.

Risk Assessment:  Look Before You Leap

A first step in addressing this increased risk is to undertake a careful review of the business activity in all the states in which you are doing business currently as well as planning to do business in the future.  In those states, a review of all nexus laws in those states would be needed–not just economic nexus laws under Wayfair, but the other types of nexus still on the books, e.g., click-thru nexus, cookie nexus, affiliate nexus, etc.  And this also means that business planning will have to include retroactive tax liability for prior years; therefore, before you register in a state, be sure you review past liabilities in that state.  This can be challenging so it’s worth enlisting the help of an experienced and knowledgeable sales and use tax team — one that can assess the situation, make recommendations and then implement the technical and research solutions needed to help you to reduce risk and stay compliant.

Get and Stay Compliant! Visit the Wolters Kluwer Sales Tax Nexus resource center to see which states employ which type(s) of nexusas well as their collection start dates.


Jerome Nestor

Jerome Nestor, Esq., CPA, MBA-Accounting Information Systems Manager Tax & Accounting North America Wolters Kluwer Mobile: +1 847.312.5671 Email:

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