You just discovered unpaid US sales tax. Maybe you crossed a nexus threshold years ago and never registered. Maybe you collected tax from customers and never remitted it. Either way, you have three resolution paths: a Voluntary Disclosure Agreement (VDA), late registration, and entity restructuring. Which one fits depends on whether the state has contacted you, whether you collected the tax, and how large the exposure is. Economic nexus has been fair game for states since the Supreme Court’s South Dakota v. Wayfair, Inc. decision on June 21, 2018.
Move fast. Interest accrues every month a liability sits, and the VDA option dies the moment a state contacts you first. This post is general information, not legal or tax advice. State rules vary, so confirm your situation with a professional.
What Is the Best Way to Resolve Unpaid Sales Tax?
A VDA is usually the best path when the state has not contacted you and your uncollected back-tax exposure is material, roughly a year or more of liability or an amount where waived penalties beat the VDA cost. Late registration fits small, recent exposure, where nexus was crossed within the last few months. Restructuring is forward-looking planning for multi-entity groups, never an escape from existing debt.
| Strategy | Best-fit situation | What it fixes | What it cannot fix | Key risk |
|---|---|---|---|---|
| Voluntary Disclosure Agreement (VDA) | State has not contacted you; material uncollected exposure | Caps lookback and waives penalties on uncollected tax | Collected-but-unremitted tax, always due in full | Window closes the moment the state contacts you first |
| Late registration | Small, recent exposure; nexus crossed within the last few months | Stops liability from growing going forward | Past liability; the state can still assess back tax | A false start date is fraud and voids lookback relief |
| Entity restructuring | A genuine new business line, structured with legal counsel | Gives future operations a clean compliance record | Existing debt; successor and personal liability follow | States attach old debt through successor-liability rules |
What Is Sales Tax Nexus and How Do You Trigger It?
Nexus is the legal connection between your business and a state that creates a sales tax collection obligation. You trigger physical nexus with inventory (including Amazon FBA warehouses), employees, offices, contractors, or trade shows in some states. You trigger economic nexus by crossing a state’s sales-volume or transaction-count threshold, which states have been allowed to enforce since Wayfair in 2018. Physical nexus carries equal weight to economic nexus.
The common post-Wayfair standard is $100,000 in sales or 200 transactions per year, but thresholds vary widely by state. Commenda’s US nexus exposure guide tracks the current threshold in every state.
How Do You Know If You Have Unregistered Sales Tax Nexus?
Run a nexus study, a state-by-state review of your sales, transactions, inventory locations, and headcount against each state’s thresholds. Most e-commerce sellers with a problem crossed an economic threshold years ago, and liability has compounded silently ever since. The thresholds below show how much they differ.
| State | Economic nexus threshold | Effective date | Source |
|---|---|---|---|
| South Dakota | $100,000 gross sales (200-transaction prong repealed July 1, 2023) | April 1, 2018 | South Dakota DOR |
| California | $500,000 in sales, no transaction count | April 1, 2019 | California CDTFA |
| Texas | $500,000 over the preceding 12 calendar months | October 1, 2019 | Texas Comptroller |
| New York | $500,000 AND more than 100 transactions (both required) | June 21, 2018 | New York DTF |
| North Carolina | $100,000 (200-transaction prong repealed July 1, 2024) | Post-Wayfair | North Carolina DOR |
| Utah | $100,000 (200-transaction prong repealed July 1, 2025 via S.B. 47) | Post-Wayfair | Utah Legislature |
The trend is clear. Wyoming (HB 197), Indiana (SEA 228), and Alaska’s ARSSTC all dropped the 200-transaction prong in 2024 or 2025, leaving $100,000 in gross sales as the sole trigger in a growing list of states.
Did You Collect Sales Tax but Not Remit It?
There are two distinct problems, and they have different fixes. If you collected tax from customers and kept it, you hold state trust funds. That money is always due in full, no VDA waives it, and it carries personal and potential criminal exposure. If you should have collected but never did, you owe tax out of pocket, but penalties can be waived and lookback capped, so the game-plan strategies genuinely help.
Can Owners Be Personally Liable for Unpaid Sales Tax?
Yes. Sales tax is a trust fund tax, and state responsible-person statutes impose personal liability directly on owners, officers, and anyone who controlled the funds. This is statutory personal liability, not a piercing-the-corporate-veil argument, which is why the corporate form does not protect you.
That liability can survive entity dissolution and, in many cases, bankruptcy. Because the tax was never yours, spinning up a new entity does not shed it.
What Happens If You Don’t Pay Sales Tax?
States escalate. They move from assessment with penalties and interest, to sales tax permit revocation, business registration holds, liens, levies, and publication on public delinquent taxpayer lists. Because it is a trust fund tax, states pursue it more aggressively than income tax.
The reputational hit is real and verifiable. California’s CDTFA publishes its largest sales-and-use-tax delinquencies publicly, listing names and amounts owed. Several other states, including Wisconsin, Connecticut, and Minnesota, run similar searchable online lists.
How Much Are Sales Tax Penalties and Interest?
Penalties and interest vary by state, so exact rates must be checked against each state DOR. The typical structure is a late-filing or late-payment penalty assessed per month up to a cap, plus interest that accrues on the full unpaid balance from the original due date and, in many states, compounds. Failure-to-file and failure-to-pay penalties often stack. A liability left alone grows every month it sits.
Here is the time-value math made concrete. Assume $60,000 of uncollected tax in one state. Add a 10% penalty of $6,000, then interest at 8% per year compounding for two years, roughly another $10,000. A two-year delay has added about $16,000 to a $60,000 problem before the state even opens an audit.
Is Unpaid Sales Tax a Civil Matter or a Criminal One?
Almost always civil. Civil penalties and interest are routine. Criminal prosecution requires intent, typically willful failure to remit collected trust funds or filing fraudulent returns, and it is rare.
The collected-but-not-remitted case is where criminal exposure becomes realistic. Keeping tax you charged customers is treated as theft of state funds, which is what turns a civil bill into a potential crime.
How Far Back Can States Assess Unpaid Sales Tax?
The standard assessment window is typically 3 to 4 years from the date a return is filed. The clock never starts on unfiled returns, so an unregistered seller has unlimited exposure back to the day nexus was triggered. Fraud also keeps the window open indefinitely.
This is the core economic argument for a VDA. It converts unlimited lookback into a capped window of a few years.
How Does a Voluntary Disclosure Agreement Reduce Back Sales Tax Liability?
A Voluntary Disclosure Agreement (VDA) is a formal agreement with a state Department of Revenue in which you proactively disclose unregistered liability. In return, the state caps the lookback, commonly 3 to 4 years, and typically waives penalties in full, though interest is usually still owed. Terms vary materially by state.
The process usually starts anonymously through a representative, so you can walk away from bad terms without exposing your identity. Eligibility generally requires that you are not registered and that the state has not contacted you first, which is the entire urgency argument. The Multistate Tax Commission’s National Nexus Program lets you disclose to multiple states through one application. Limited lookback applies only to tax you did not collect. Collected tax is paid in full regardless.
What Is the VDA Lookback Period by State?
Most states cap VDA lookback at 3 to 4 years. A few offer shorter periods, and a few have no formal program, so confirm terms before you disclose. The Multistate Tax Commission (MTC) sets the baseline terms for its multistate program.
| VDA term | Typical treatment | Source |
|---|---|---|
| Lookback period | 3 or 4 prior tax years plus the current incomplete period | MTC National Nexus Program |
| Penalties | Waived in exchange for voluntary disclosure | MTC National Nexus Program |
| Interest | Usually still owed; full waiver is uncommon and varies by state | MTC National Nexus Program |
| Minimum to apply | $500 good-faith estimate of tax due per state | MTC National Nexus Program |
| Collected-but-unremitted tax | Paid in full, never capped by the lookback | MTC National Nexus Program |
Is Late Sales Tax Registration Ever the Right Move?
Registering now and collecting going forward can make sense when your exposure is small and recent. But understand the form trap. Registration forms ask when you began selling in the state, and that date, not the filing date, determines your historical exposure. Listing today’s date when you have years of prior sales is misrepresentation.
A false start date can trigger fraud penalties, leave the statute of limitations open indefinitely, and void any limited-lookback protection. Even an honest start date lets the state assess back taxes, so late registration does not cleanly erase the past. It simply stops the liability from growing.
Can You Restructure Your Entity to Isolate Sales Tax Liability?
A new entity can give future operations a clean compliance record, but it does not erase existing debt. Successor-liability rules let states attach old sales tax debt to a new entity that acquires the old one’s assets, IP, or customers. Responsible-person liability for collected-but-unremitted tax follows the individuals regardless of entity.
Many states also require a bulk-sale clearance certificate when business assets change hands, forcing the buyer to withhold funds until the seller’s sales tax is cleared. Treat restructuring as forward-looking structure built with legal counsel, using Commenda’s entity management platform, not a way to hide debt from auditors.
How Do You Catch Up on Unpaid Sales Tax? A Step-by-Step Game Plan
Work five steps in order. First, run a nexus study to find every state where you have exposure. Second, quantify the liability per state and separate collected tax from uncollected tax. Third, choose a strategy per state using the criteria above. Fourth, sequence multistate disclosures deliberately. Fifth, register, remediate, and automate filings so this never recurs.
Sequencing matters because states share data. Registration or audit activity in one state can surface you in others before you file there. Running multistate disclosures through the MTC program helps you coordinate the timing.
How Commenda Helps You Resolve Unpaid Sales Tax
Commenda’s global indirect tax platform tracks physical and economic nexus across all US states, quantifies your back-tax exposure, and manages registration and automated filings once you choose a resolution path. It supports 100+ ERPs, APIs, and custom integrations, so your compliance data stays in one place. Use the US nexus exposure guide to check thresholds and the sales tax calculator to look up current rates.
You do not have to carry this uncertainty yourself. Book a demo to get a free assessment of your nexus exposure and back-tax resolution options.
