When finance leaders think about sales tax compliance, the conversation usually centers on obligation and risk. You need to comply because those are the rules. You need to get it right to avoid penalties. You need to stay on top of filings to prevent an audit.
All of that is true. But there’s another side to this conversation that doesn’t get enough attention: the real money you could be saving by addressing your sales tax exposure proactively, rather than waiting for a state to find you.
At Miles Consulting Group, we’ve spent 24 years helping businesses navigate multi-state sales tax obligations, and one thing we see consistently is companies leaving significant money on the table simply because they don’t understand what’s possible when they come forward voluntarily.
As the new year starts, now is the ideal time to assess where you stand and get your company’s remediation process started now, so you’re entering 2026 with a clear plan and momentum.
The Scale of the Problem Most Companies Don’t Realize They Have
We estimate that around 75% of the clients who come to us have more than three years of back taxes owed to one or more states.
That’s not a typo. Three out of four companies that approach us for support have accumulated years of unfiled obligations, sometimes without realizing it. They’ve been selling into states where they have nexus, collecting nothing, and building up a liability that compounds with each passing quarter.
The reasons vary. Sometimes it’s a lack of awareness about economic nexus thresholds. Sometimes it’s growth that outpaces internal processes. Sometimes it’s an assumption that because their home state doesn’t tax their product, other states won’t either. Whatever the cause, the result is the same: a growing liability that includes not just the tax itself, but penalties and interest on top.
This is where the cost savings conversation begins. Because if you’re carrying years of back taxes, how you address that exposure makes an enormous difference to what you’ll actually pay.
How Voluntary Disclosure Agreements Create Real Savings
A Voluntary Disclosure Agreement, or VDA, is an arrangement where a company proactively approaches a state to resolve past tax obligations. In exchange for coming forward before being discovered, states typically offer two significant benefits: a limited look-back period and waived penalties.
The look-back period is where substantial savings can occur. Most states limit their VDA look-back to three or four years, depending on the jurisdiction. That means if your nexus actually goes back to 2019 or 2020 for example, but you enter a VDA in early 2026, you might only need to address 2023, 2024, and 2025. The earlier years get eliminated entirely.
Think about what that means in practice. If you’ve been selling into a state for six or seven years and have accumulated hundreds of thousands of dollars in potential liability, a VDA could allow you to address only the most recent three or four years. We’ve had many clients save over $250,000 in taxes and penalties through this process because we were able to eliminate multiple years of exposure that would otherwise have been owed in full.
On top of the look-back limitation, VDAs typically waive penalties. Penalties generally run around 20% of the tax owed, so on a $100,000 liability, that’s $20,000 that a company wouldn’t have to pay. Interest is statutory and rarely waived, but eliminating the penalty alone represents significant savings.
Carrying years of unfiled sales tax obligations? We offer a complimentary nexus and exposure review to help you understand where you stand, what a VDA could save you, and how to enter the new year with a clear remediation plan.
The Math That Makes This Worth Doing
Let’s walk through a typical scenario to illustrate the financial impact.
Let’s say your company owes $100,000 in tax to a state. If that state audits you and finds you’ve been non-compliant, you’re looking at roughly $100,000 in tax, plus 20% in penalties ($20,000), plus interest (typically around 10%, though this varies). Your total exposure could easily reach $130,000 or more.
Now consider the VDA path. We help you enter a voluntary disclosure. The state limits the look-back, which might reduce your tax liability to $60,000 because we’re eliminating several years of exposure. Penalties are waived entirely. Interest and our fee still apply, but on a smaller base.
In this scenario, you’re paying roughly $70,000 all-in instead of $130,000 or more. That’s a $60,000 difference, and it’s not unusual. We see these kinds of savings regularly because so many companies come to us with more than three years of accumulated exposure. Our fee pays for itself many times over when compared to the penalties and additional tax years you’d face if a state found you first.
Understanding Your Actual Liability
One important detail to remember is that sales tax is a pass-through tax. When you sell a product or service, you’re supposed to collect tax from your customer and remit it to the state. The tax isn’t meant to come out of your pocket; you’re acting as a collection agent for the state.
But here’s where it becomes your problem. If you fail to collect the tax from your customers, the state doesn’t go after each individual customer to recover the money. They come to you, the seller. And because you were responsible for collecting that tax but didn’t, it now becomes your liability. What should have been a pass-through cost that your customers paid is now coming directly out of your company’s funds.
This is why addressing historical exposure is so important. Every quarter you delay, you’re accumulating liability that will eventually need to be paid from your own pocket rather than collected from customers. The sooner you get compliant, the sooner you can start collecting from customers going forward and stop your liability from growing.
Put simply, every month of delay is money out of your pocket that could have been avoided.
What Software Can’t Do for You
Sales tax automation software is valuable for ongoing compliance. It helps you calculate rates, manage exemption certificates, and file returns. But one of the many things software cannot do without human expertise is negotiate with states on your behalf.
VDAs require professionals who understand the nuances of each state’s program, can navigate the application process, and know how to present your situation in the most favorable light. Some states have statutory VDA program with defined terms, while others allow negotiation on the look-back period and other factors. Knowing which is which, and how to approach each state, makes a meaningful difference in outcomes.
There’s also the matter of exemption certificates and customer documentation. During the VDA process, we often help clients recover tax that was legitimately exempt. If your customer already paid use tax on a purchase, you may be able to credit that against your liability. This requires reaching out to customers, gathering documentation, and presenting it properly to the state. No software platform handles this work.
This human-led, consultative approach to remediation is where real cost savings are generated, savings that software alone simply can’t deliver.
Why Now Is the Right Time to Start
If you’re reading this in late January, you might wonder when it makes sense to address this. The answer is: start the conversation now.
Beginning the assessment now means you’ll start the first quarter of 2026 with clarity on your exposure and a plan for remediation. You can make this the first thing you check off your list in the new year rather than something that keeps getting pushed to the next quarter.
The bottom line: there’s no advantage to waiting, and real cost to delay. Remember, a VDA entered in early 2026 could eliminate years of liability and tens of thousands in penalties. That window is worth protecting.
Could a VDA Reduce Your Sales Tax Liability?
If any of these apply, a VDA could deliver significant savings:
- You’ve been selling in multiple states for more than three years
- You’re not currently registered or collecting tax in all states where you have customers
- You’ve assumed your product is exempt because it’s exempt in your home state
- You’ve never conducted a formal nexus review
- You’re preparing for a funding round, acquisition, or audit and want a clean baseline
Taking the First Step
If you suspect your company has accumulated sales tax exposure, the first step is a nexus review. This assessment identifies where you have obligations, when they begin, and what your potential liability looks like. From there, you can make informed decisions about remediation strategy and prioritization.
At Miles Consulting Group, our team includes former Big Four advisors and former state auditors.with decades of experience helping businesses resolve sales tax exposure. We understand the process from both sides of the table and use that knowledge to achieve the best possible outcomes for our clients.
If you’d like to understand your position during Q1, we’re here to help. Contact us at info@milesconsultinggroup.com or book a consultation through our website. A brief conversation now could save you significant money in 2026 and beyond.
