Multi-State Sales Tax Risk: Clean It Up Quietly or Face the Audit?

In this episode of Beyond the Ledger, host, Shardae Layfield, alongside the expertise of DiAndria “Dee” Green (The SALTy Lawyer), breaks down how businesses can proactively manage multi-state sales tax exposure through strategic tools like voluntary disclosure agreements (VDAs) and managed audits. The conversation explores how evolving nexus rules and increased enforcement are creating new risks for companies operating across state lines. Dee shares practical insights on how businesses can limit liability, navigate complex state requirements, and make informed decisions between remediation options. The discussion also highlights the importance of timing, documentation, and proactive compliance to avoid costly audits and long-term exposure. 

Key  Topics

• Many businesses don’t realize their multi-state sales tax exposure until it’s costly.
• VDAs can limit lookback periods and reduce penalties.
• Timing matters—once a state contacts you, VDAs may be off the table.
• Choosing between VDAs, backfiling, or audits depends on risk, cost, and exposure.
• Managed audits are more time-intensive and documentation-heavy.
• Lack of awareness keeps companies from leveraging VDAs.
• Strong documentation is critical for audit defense.
• Sales tax compliance impacts M&A, due diligence, and valuation.
• State and local rules vary—expert guidance + automation are key.
• Stay proactive: Taxability → Nexus → Exposure → Fix → Automate

Chapters

00:00 Introduction to Multi-State Sales Tax Exposure

02:10 Understanding Voluntary Disclosure Agreements (VDAs)

08:11 Benefits of Voluntary Disclosure Agreements

12:01 Common Misconceptions About VDAs

17:12 Operational and Reputational Benefits of VDAs

20:34 Exploring Managed Audits

20:54 Understanding Audits vs. Voluntary Disclosure Agreements

23:44 Key Decision Points for Businesses

26:58 The Importance of Timing in Tax Compliance

28:31 Best Practices for Negotiating with Tax Authorities

32:13 Navigating State-Specific Rules and Nexus

36:24 Proactive Strategies for Sales Tax Compliance

Resources

Bennett Thrasher State and Local Tax Practice - https://btcpa.net/services/state-local-tax/

Transcript

SPEAKER_02 0:08

I'm your host, Sharday Layfield, and welcome back to Beyond the Ledger, where we go beyond the numbers to explore the strategies, risks, and opportunities shaping today's business landscape. Most businesses don't realize they have multi-state sales tax exposure until it's already a problem. By then, penalties, audits, and years of liability can be on the table. But what if there were ways to proactively reduce that exposure and even limit how far states can look back? Today we'll be breaking down two powerful strategies businesses use to resolve multi-state sales tax risk, voluntary disclosure agreements, and managed audits, and how to determine which path makes the most sense. Dealing with multi-state tax rules can be one of the most complex challenges businesses face today. And a few people know that landscape better than today's guest. I'm very excited to introduce DeAndrea D. Green, also known as the Salty Lawyer. Dee is a partner in Bennett Thrasher's state and local tax practice where she helps businesses navigate the complex and ever-changing world of multi-state taxation. With more than 15 years of experience, very impressive, by the way. Dee advises companies on state income tax, sales and use tax strategy, and compliance solutions that help organizations reduce risk and optimize their overall tax position. Thanks for being here today.

SPEAKER_00 1:35

Thank you for having me.

SPEAKER_02 1:37

I'm excited to get into this conversation and glad you're finally on here. So thank you.

SPEAKER_00 1:41

Yes, I'm excited. I'm about to nerd out on please do. I'm gonna keep you guys real salty.

SPEAKER_02 1:47

Please. Okay. So let's start by setting the stage a bit.

SPEAKER_00 1:51

Yes.

SPEAKER_02 1:52

Sales tax exposure across multiple states has become a growing concern for businesses, especially as Nexus rules continue to evolve and enforcement continues to increase. So to kick things off, can you explain what a voluntary disclosure agreement or VDA is and why it has become such a valuable tool for businesses dealing with multi-state sales exposure?

SPEAKER_00 2:16

Oh, great, great, great question. And I'm glad that you called it a tool because I I say a voluntary disclosure agreement is a strategic tool. But just to take a step back real quick, Nexus keeps changing, and also states who are looking for money, the taxability rules keep changing as well. So things that weren't previously taxable, such as certain services, have now become taxable. So people are going crazy. For instance, you know, we're dealing with the one big beautiful bill. Washington just introduced what I call the one big beautiful bill for Washington because now they're um taxing certain services, digital services. Because you know, everybody, kind of like what we're doing today, the podcast, they're starting to tax all those things because people don't have to leave their home. Influences are influencing from the comfort of their home and using just digital work to do that. So a voluntary disclosure agreement is a strategic tool that allows you to handle historical liability or to remediate, resolve it, if you will. And um, I don't know if you want me to go too far because you might ask me more questions that lead into this. So tell me if you want me to sprinkle. Okay, so voluntary disclosure agreement, like I said, once you know, um it's important. I like to tell people, you cannot manage what you haven't measured. So once you know if your product is taxable and where you have a Nexus footprint, then you are able to estimate your exposure. So you know how many states you're in, where it's taxable, and then how much do I owe the states? Enter the voluntary disclosure agreement because if you have trip nexus beyond three to four years, and that three to four years is going to come into play a little bit later when we talk. But if you have tip trip nexus years beyond three to four years, the VDA is a very important strategic tool that limits the look back period. So states can't go beyond that three to four year period if you get accepted into a voluntary disclosure agreement. That's why it's a strategic tool to stop the bleeding. There's other benefits to it, such as waiving penalties. A state like Texas waives waives interest, but you could do that with a backbile and you could get a penalty abatement. So I like to say it's really because you want to limit the look back period.

SPEAKER_02 4:29

Got it. Okay. Thank you. Okay, so once businesses realize they may have exposure in multiple states, the next question usually becomes what are our options and what does this mean financially? So when a company is considering a VDA, what are some of the core benefits they should be thinking about, particularly when it comes to penalties, audits, and those look back periods?

SPEAKER_00 4:51

That's a great question. Um again, too. So just like I was telling you, um, you know Nexus, you know your taxability, and then from that, you know when you trigger Nexus, like did I establish it two years ago, three years ago, one year ago, seven years ago, and then you base your exposure off of that. So companies will then say, What are my options to handle this historical liability? Especially if you've collected sales tax and you haven't remitted it. Now you know I'm a lawyer and I'm that's illegal, guys. You cannot collect something and not remit it because the state's um uh sales tax is a trust tax. So the state is entrusting you to collect that money, be a good steward, custodian of that money, and then remit it to the state. So then companies said, okay, great, D, you told me how much money I owe. I owe a ton of money. What do I do? And then we put options for them. You're either going to register and backfile to the date that you trigger Nexus, or you're gonna do a voluntary disclosure agreement. And the reason why I bring that up is because you don't jump straight to voluntary disclosure agreement. If your exposure is low, if you've just had liability for a year, that might not be so advantageous. You might just be able to do a backfiling. And like a backfiling is, like I said, register in the state for sales tax purposes and then file returns back to the date you established it. So our firm not only looks at um the benefits, but we also look at the professional fees too. We don't want to bankrupt our clients. We want to make sure is this efficient and cost economical for you. So to go back to the benefits, the benefits of a VDA is I love, love, love putting it the way. You say, hey state, you didn't catch me. I voluntarily came forward. And in exchange for you not catching me, you need to give me something. It's a quid pro quote. Okay. And so those benefits are, like I said, the most important one is limit the look back period. Because if the state finds you and you didn't voluntarily come forward, they can go back as far as they want to if there was a failure to file, if there was some negligence. They can say, Oh, she hasn't been filing for seven years. We can go back those seven years, but with the VDA, depending on the state, it's usually three to four years. Okay. It will they will say, Thank you, and thank you for coming forward. We're we know that you've been out of compliance for seven years. We're only gonna go back three to four years. That saves a lot of money for you. Seven years compared to three to four years, that's the biggest one. Waiving of penalties, they will um extinguish all your penities. That saves a lot of money too. So not only did they limit you down from seven years to now you're four, they've waived all the penalties. That's a good cost saving.

SPEAKER_03 7:32

Yeah.

SPEAKER_00 7:33

But I'd like to say the biggest bit of it is that stop the bleeding. And some people will come to me and say, Dee, I only owe a little bit of money. But I'm like, but you've been in that state 10 years. So technically, even though you owe a little bit of money, sometimes I'm doing that VDA to stop the clock. Because if you get audited, they're gonna go back as far as they want to, even if it's penalties can add up, right? So you can owe a little bit, you could say, I only owe a thousand dollars.

SPEAKER_02 7:58

And you can turn into something else.

SPEAKER_00 8:00

Yes, it can turn into something, and then voluntary disclosure agreements aren't on the table anymore. Um, so I can stop there too, because you might ask me, well, how do you get a DDA? So I'll stop there.

SPEAKER_02 8:11

But you know what? Okay, you can talk about it. How do you go? What does that process look like?

SPEAKER_00 8:17

Great question again. So not everybody is eligible for a voluntary disclosure agreement. The general, and they and they vary by state, the requirements, but generally, you cannot have been contacted by the state. Hence again, voluntary. It's not voluntary if I caught you and I sent you an audit. Right. Um, you cannot have been registered for that particular tax type, be it sales tax, income tax. Now, there are instances when you have a good advisor, such as the salty lawyer D. There are instances where I won't give up. I might call the state and say, hey, state, I know they were registered for this sales tax. However, this was years ago, they didn't know about it. There's been a change in ownership, like these are all no negligent things and no intentional things. Some states might work with you. Now, the general rule is if you've if they reach out to you or if you're registered, then no. Okay. But sometimes there have been instances where my team has called the state and explained the circumstances, and they've either allowed us in the VDA or they said, we're gonna give you a VDA-esque type process. Okay. But generally those are the two main things how you are kicked out of a VDA. Um if you're registered already or they have contacted you. It violates the whole voluntary disclosure. The process generally is um your advisor will either submit a letter or a form, a voluntary disclosure agreement, letter or form requesting to be accepted into the voluntary disclosure agreement program. And then you'll generally um some states are anonymous where I don't have to say your name is company X, Y, and Z. Okay. I can just say a company that sells something generic. Like if I know you sell um clothing or firearms, I won't say those things specifically. I might say this company that has been existing since 1989 and they sell tangible goods. Okay. So I'm leaving it up to the state. You go figure out who they are. I'm not gonna tell you. And then I estimate the exposure, and they owe about this amount of money. Those are for those anonymous states. Some states we have to say your name. Okay. The state will then write you back and say you're either accepted or you're not accepted into the program. I rarely find that you're not accepted unless you go back to those things that I said that got you kicked out. You did something that violated their rules. So it's really important to look at the state rules for a voluntary disclosure agreement. Sometimes they have three to four to five. So it's really important to look at that. Once they've accepted you, um, you'll then enter into a voluntary disclosure agreement. That is a binding contract between me and the state.

SPEAKER_01 10:52

Okay.

SPEAKER_00 10:52

And so it's a contract. So neither one of us should breach it, right? We should do everything that they said to do. And as long as we do what they what they've outlined in that agreement, then you can get those penalties wave. You can get the limited look back. That agreement will then set forth um we know you owe$10 million back seven years, but it's gonna say, we're only gonna look back these four years. And then they're gonna be a schedule, a certain amount of schedules you have to produce. It'll be all laid out in that agreement, telling you when the due dates are, how much money you owe, how much interest you owe. They owe it it's a very um, sometimes can be a tedious, time-consuming process. Not on our end, the people who are filing it, but you're at the mercy of the state. Once we file the application, it's now in the state's hands for when they tell us uh it a BDA could take two months, it could take a month. It just depends on the state's timeline, and then they'll send you the final sign agreement, they'll send you an interest calculation saying this is how much you owe, and then you have to then register and file the returns based on that period.

SPEAKER_02 12:01

Okay, thank you for sharing that. Yes, that's important information. Okay, so even with those benefits, we still see a lot of hesitation from companies about coming forward voluntarily. So, from your experience, what are some of the misconceptions or myths businesses tend to have about VDAs?

SPEAKER_00 12:20

I think lack of education. If you don't have a proactive strategic advisor who one, uh ultimately we want you to be compliant. That's the end goal. We want you to be compliant. But I should be advising you of these things. And I think if VDAs are now um, it's my job, just like I'm talking to you right now, to tell you what's the strategy behind it and why we're doing. Some people don't even know that voluntary disclosures are available to them, or amnesty programs, which are akin to voluntary disclosure agreements, but they're um more rigid and they're not always available. But I think it's lack of education. So when we're going through a Nexus study with somebody, an exposure calculation, and we're saying, great, you can now manage because we've measured what you owe. Here are your options. That's the onus is on me to walk you through why this is important, what we're doing right now, and I think it's just lack of education and the importance of it. A voluntary disclosure agreement is such a beneficial strategic tool to say, man, I can go, I can wipe out four additional years of exposure that I owed. Like people just don't know that. They don't know the requirements. Um, and somebody will tell them, file prospectively, which is always a no-no for me because um when you file prospectively, even though, for instance, like I said, take the company that might have triggered Nexus seven years ago. When you file prospectively, you're filing a registration saying, No, I just triggered Nexus today. You and I both know you triggered Nexus seven years ago. And again, putting on my attorney hat, when a officer of the company signs a registration, they are doing so under a penalties of perjury. And so they are perjuring themselves by saying, Um, no, I triggered Nexus today. No, but you didn't, you triggered it seven years ago. So the state can hold you liable for those at as the officer of the company because when you sign that penalty of perjury, you're attesting to everything that's in this document is true to the best of my ability. So I always say prospective filing, it's ultimately a business decision. All of this is a business decision. I can talk to you till the cows come home and ultimately you can make your decision. So when I'm going through everything with you, I'm gonna walk you through the options. I'm gonna walk you through the voluntary disclosure agreement where it makes sense and where it's available. Because sometimes I'll have a client who said, Oh, I forgot to tell you I was collecting sales tax D. Did I forget to tell you that? Or I did forget to tell you that I am registering that state. So um I think sometimes people are hesitant because they know the little facts that they haven't told me. And I really think it's it's um lack of education. That's why it's so important that we're doing this podcast. We do webinars and voluntary disclosure agreements, insights. I think they're just um more and more people are using them, but they really they don't know why they're using them. Yes, and so it's our job to show people why this can, man, this can clear up a lot of liability for you. Tennessee has an amnesty program, and it sounds too good to be true, but and there's some is it it's not the reason why people think it's too good to be true is because unlike a traditional VBA program, there's no application, there's no form you fill out. But what Tennessee has done is laid out the rules and the requirements for how you apply for this amnesty while it still exists. And they say just write a memo, keep it for your files, keep it for however long that statute is. If it's four years, keep it for that amount of time. But then you have to be registered in the uh streamlined state. So there's some quirks to it. Okay, but just imagine if you ow 50 million in that state, and Tennessee says, you know what, I'm gonna act like that never existed. There's they're wiping away all that money. And again, it sounds too good to be true because you're not going through the formal process that I just described to you. You're keeping a memo. I've had a client say to me, Dee, can you get something from the auditor that says that the amnesty program is legit? And I sent her the link to the website. I talked to her about it. Yeah, I wrote up all the requirements, then I sent her the link.

SPEAKER_02 16:28

Or they needed to lay eyes on it.

SPEAKER_00 16:29

Yes, but that wasn't enough. Even though she seasoned on their website, seasoned in the statutory code. I had to write the auditor and say, Is this the process? Is this legit? And I had to send her that email and she was like, Oh, okay, I'll keep that.

SPEAKER_02 16:44

And so we're gonna keep all the confirmation.

SPEAKER_00 16:47

And I can understand it, right? Because if you owe that much in a s in a state and I'm telling you, don't worry about it, you're like, Yeah. Are you gonna come back in two more years? Right. So it's like it's really important. Right. And so it's really important with every part of sales tax. The whole life cycle is that you keep documentation for everything. You keep those voluntary disclosure agreements when they say yes, you keep every single document um in your file.

SPEAKER_02 17:13

Okay. And while many people initially think about VDAs purely from a tax liability standpoint, there's often a broader operational impact as well. So, in your experience, how can entering into a VDA help a company operationally or even reputationally beyond simply reducing tax exposure?

SPEAKER_00 17:34

Oh, that's amazing. So, I am also for our firm, I I'm the partner on the state and local tax sections of due diligence. And so I again a proactive advisor is not just thinking about the right now. They're thinking about their client. What if you decide to sell this company in one year, two years, three years? Most times you see a deal either killed or stalled because of sales tax. Yes. Okay. And so it's important that you are cleaning up your company, not only just to be in compliance, but in case you decide to sell it. So you don't want to come in due diligence and you said, I want to buy your company for a hundred million dollars, and then you see that I owe 50 million of sales tax, right? So that helps you prepare. You should be uh prepared for due diligence. Even I have clients who said, I'm not preparing to sell, but I want you to clean up your company and maintain it as if you wanted to sell it one day. Also to reputation, like you said, um, there are clients who service government entities who um they can't get a government contract unless they're in compliance. If the government sees that you're not in compliance, they might say, Oh, I don't want to deal with them, I can't give them this contract. So if you can say that I am compliant, be it through a voluntary disclosure agreement, you can show all that. Like, yes, I had historical liability, but I cleaned it up, either through voluntary disclosure agreement or backfiling, that's good for your reputation too. And you can forget just reputation and you can sleep at night knowing that sales tax, you don't have to worry about that. It's sales tax is so complex that um it keeps you up at night because you don't know is the state gonna audit me. Also, voluntary disclosures keep you audit ready. So if a state does come and say, let's say they found out you had payroll in that state and you hadn't registered for payroll, and they come and audited you, and they might say, Hey, you didn't file, you were in ex you were non-compliance for seven years. You can whip out your voluntary disclosure agreement and say, Well, yes, I was, but I entered into a voluntary disclosure agreement, and that's why I only paid for these three to four years. Again, keeping documentation, letting people the end goal is always saying I'm in compliance. Um, and so that does a lot for your reputation. I mean, I tell clients that we're not trying to sell, you know, we we have to make revenue, true enough, but we're not trying to sell stuff just to sell you stuff. My goal is multifaceted. I want to be advising you on strategy. I don't want somebody off the street telling you, have you heard about a voluntary disclosure agreement? Um, I don't want a government contract saying, hey, you can't get this contract because you're not in compliance. My goal is always to keep you compliant, even if you feel like I'm conservative. And ultimately, it's a business decision, but it's always here at Bennett Thrasher, we like to educate, to advise you of what's on the table, what's out there, what you owe, who you owe, how you owe it, how you resolve it.

SPEAKER_01 20:29

Right.

SPEAKER_00 20:29

And you ultimately can do what you want. But we want to be on the right side of things.

SPEAKER_02 20:34

Nice. So now VDAs are one option for addressing exposure, but they're not the only path available. So another approach that sometimes comes into play is a managed audit. So for listeners who may not be familiar with this concept, can you walk us through what a managed audit is and how it differs from a VDA?

SPEAKER_00 20:54

So that was a perfect segue because you know I started talking about audits already. So um you can go through the process either, um, it's like like they say, either life will sit you down or you will sit down yourself. That's what a voluntary disclosure agreement versus an audit is. Um so I think like an audit, whether it's managed or hey, almost like you got subpoenaed, um, that's a very tedious process. They might they'll give you a long list of information requests saying we need to see all these things for the relevant period in question. It could be three years, four years, five years. They'll ask for a list of invoices. And you will have to show um, they might say, okay, you said of that hundred million that you have in sales, you said half of that was exempt customers. When you're an audit, you're gonna have to walk it like you talk it and back it up. If you don't have the proof to substantiate that something is exempt, an auditor is gonna say, No, that's taxable. So, what I mean by that is they're gonna ask you for exemption certificates to solidify that. So I said you were exempt. Why is she exempt? Is it a 501c3? Is it another entity? Um, is it because a manufacturing process is exempt? I have to be able to provide proof of are they a reseller? Are they reselling these products? Do I have a resale certificate, an exemption certificate for that type of product? So during an audit, there's going to be a lot of documentation you have to show. You're kind of at the mercy of the auditor, whereas a voluntary disclosure agreement, you're entering into that binding agreement. Again, it sets forth every rule you have to adhere to. Generally, it's producing the sales tax worksheet to show them how much how many sales you've had. It's usually just that. And sometimes in the BDA, they will say, Hey, I noticed you marked those exempt, you need to show me exempt sales too. If you can't prove it, like I said, it will be taxable. So a managed audit is just a more tedious, drawn-out information written. Like you might be like, Oh my God, I gotta go back to what? I gotta pull what? I gotta do invoices, I gotta do certificates. And sometimes, let's say those companies that you sold to, they might not be in existence anymore. Oh no. And so who has to pay that? You can't go back and go to them and say, hey, your certificate is out of date, or you didn't pay us. They're they're bankrupt now. So who who you gonna call? Not Ghostbusters, you can call yourself, right? And you have to pay that. Because ultimately the state just wants their money. Yeah. Yeah.

SPEAKER_02 23:21

Okay. Decisions. So when a business is evaluating those two options, the decision can be pretty complex. Sounds like. So what are some of the key decision points a company should consider when choosing between a pursuing a VDA versus going through a managed audit? And are there certain situations where one approach clearly makes more sense than the other?

SPEAKER_00 23:44

Yes. So I think just not just VDAs and managed audits, but going back to even adding um filing manual returns, backfilings, that needs to be thrown on the table too. Or if um like I said, those who want to do prospective filing, which again, guys, I don't suggest. So let's throw the three options VDAs, backfilings, and a managed audit. You always want to look at not only how much exposure you have, sales tax exposure, including penalties and interest, but you want to look at what is the professional fees it's gonna cost to handle a VDA or do backfilings. So for instance, let's say if it's if you have a VDA and there's this flat fee for doing it, it's gonna cover that whole period. If you have to do backfilings, you might have to do, and you're a monthly filer, and let's say you've been out of compliance for four years, you have to do 12 times four years. That's how many returns you have to do. You have to go back and do all those. So you need to look at professional fees, the exposure, because sometimes your exposure may be so small that I might say, Oh, you only owe$5,000 in the state. Let's set a threshold to say my risk tolerance is this much. If it's under$50,000,$20,000, I'm not gonna worry about it. In that scenario, I might tell you, okay, that's great. I want you to keep money, set money to the side that you know that you owe in an escrow or if the state ever comes calling. So I think you're looking at professional fees and of course the exposure, that's always on the table. But also, I like to tell people, you get what you pay for, right? So somebody might be like, I'm not doing that BDA because I got to pay you professional fees too. But we're also saving you a lot of money. Because just think if you had to pay that seven years worth of liability if you didn't have the BDA, or if you get audited, that's you now have to pay all seven years. Whereas if I help you with a BDA, what's paying me a professional fee to not save you up some millions of dollars? So I think it's looking at exposure, professional fees, and just seeing what the cost. Also, um internally, like some you're thinking, like, what if instead of hiring me, somebody in your firm has to do this work? They don't know sales tax. You might be spending a lot of money, albeit they're on your payroll, but your uh time is a commodity we can't get back, right? So to have somebody um like you, let's say you're in marketing, and I said, dude, the sales tax VDA. You're not gonna know where to start. Right. You're not gonna know where to start. That's a valuable resource. Yeah. So considering that too, like how much time would it take somebody else to handle this when you can let the expert handle? And I think when we give them our deliverable to show them the exposure and the options, they get to see the differential of how much money you saved when it's advantageous. Like I said, I don't just say go do a BDA. I look at the things that you're asking me, the exposure, the time when she ch you uh trigger Nexus, because that's very important too, to know when you trigger Nexus.

SPEAKER_02 26:42

So timing also seems to play a huge role in this conversation. For example, if a business has already been contacted by a state or is already in the middle of an audit, how does that impact the eligibility or effectiveness of a VDA compared to a managed audit? I know you touched on it.

SPEAKER_00 26:59

No, yeah. So this is great. I mean, because we can't hit on all those things enough. So I know I touched on it, but again, um the name is voluntary disclosure agreement for a reason. So if I come after you, you didn't voluntarily come for I caught you, you didn't catch. Um so timing is very important. Like I said, if you go to those states' requirements too, they list out all kinds of um uh requirements. Timing is also important too, because I feel like every time I educate somebody on voluntary disclosure agreement, they go, no, not now, D. The next day they might get an audit. Or and the cl time just keeps ticking, right? So timing is also important too because once we've done a Nexus study and we've told you when you trigger Nexus, you're just bleeding money. You know that you're out of compliance. So the more and more time you allow to pass, that's more sales tax or non-compliance that you're out of non-compliance, and so you're bleeding sales tax. Also, you're shortening the window of being able to reach out to people to recoup that sales tax. But then, like I said, the biggest thing is if an auditor comes to you and it's like, this is off the table, or when you're waiting too long. Um, if voluntary disclosures are off the table, that's one less option you have to mitigate and resolve.

SPEAKER_02 28:13

Okay. So both of these, those processes ultimately involve working with the state tax authorities, which can feel intimidating for businesses that haven't been through it before. From your perspective, what are some best practices or tips for approaching those negotiations effectively?

SPEAKER_00 28:31

So this kind of segues again, um, I like to tell my clients you focus on the business that you created and allow us to focus on sales tax, consulting, and compliance. Um, so because we know what we're doing. Right. They have all these states. And oh, by the way, the L in SALT is not silent. So those localities are starting to rear their heads too, and they have voluntary disclosure agreements too, as well. So when I'm approaching that, again, knowledge is everything. I have to know what I'm what I'm talking about. My team has to know. We have to know the process and the procedures, if you're eligible or not. And if we don't know, we have to, like I said, we stay connected to these policy people. I try to get to know if I see Joanna Green, my cousin, is constantly doing the BDAs, I might want to start to get to know her because I see that she's doing BDAs. Um, so that's a good way of approaching it too. Making relationships. Relationships are everything, whether you're uh people like to say they're selling stuff and they're no, we're in the relationship business. So making relationships is very helpful during an audit process during the BDA because let's say I need to um roll in another period during a BDA. And um remember that contract that I talked about, and they put the relevant period. But let's say I know we're approaching a new month. I can say, Hey, Joanna, I know the agreement said this, but we're approaching a new month. Can we roll that in? So I think it's about again, knowledge and um the voluntary disclosures are what they are. They lay out the requirements, but I don't take no for an answer either. So, like you said, some things that may disqualify you. Um, you're in no worse position by asking the question. And even if Joanna says, now girl, I know you saw those four requirements, and I'm like, but hold on, Joanna, let me talk to you about why this happened. She still might say no, you can't do the BDA, but that's where negotiation comes in. And that kind of leads me to why. Shout out to all the sales tax automated solution providers. I work with them. The way we're going in the world, people and platform, we have to be collaborative. But I don't suggest that um they handle the voluntary disclosure agreements. Nothing to be disparaging against them, but like I told you, a lot of this is relationship. It's talking, it's talking to the auditor to explain a situation.

SPEAKER_02 30:52

Yeah, scenario. Yes, yeah.

SPEAKER_00 30:54

Because if an automated solution is doing it, if there's nobody manning that, who's gonna say, hey Joanna, can I roll in this other period? Or hey Joanna, can I get some more time to get those exemption certificates to prove the taxability? Like there needs to be some consulting going on there too. So I think um it's an art and it's knowledge foremost to know the process that you're doing. And if you don't know all, like some states will say you have to have some sales tax liability in order to do this VDA. So let's say I told you in the client example, they've been around since 1983, but they didn't have any taxable sales. I'm not just focusing on the number, I'm focusing, y'all have been around, you guys have been out of compliance. So some states will say, No, you have to have some sales tax. I might call that state and say, Let me tell you why I'm trying to do it. Yeah. I'm trying to use it for the strategy for to stop the to stop the clock. Um, they might say, Well, let's do a settlement agreement, but an automated solution is not going to talk about that or think about all of that. Um, so yes, it's very strategic, like I said.

SPEAKER_02 31:55

And of course, one of the biggest challenges here is the fact that every state approaches these issues a little differently. Especially you touched that on a little bit too earlier. How do state-specific rules and differing look back periods and or nexus nuances influence how companies should approach compliance?

SPEAKER_00 32:13

Well, again, let's go back to I want my clients to focus on um the business that they created. So again, my job is to educate them on that. There are over there are all the states that we have. Within those states, there are several different jurisdictions. Again, like I said, the L and Salt is not silent. So you have some states that are home rule states like Louisiana or things of Alabama who have localities that can make up their own rules as well. And so it's um the complexity is always gonna keep the salty lawyer salty, right? And you should want me to keep up with those complexities because the states are always changing something. A state, you can be in you see from our building, we can see all the different cities. We can see Midtown, we can see Buckhead. Buckhead's tax rate can be different from Midtown's tax rate, just depending on the zip code, right? And so um states and localities different. And to keep up with all of that, uh, somebody who created uh a tangible good, that nice beautiful coach you have on, they should be respond be worried about what's our new design, not am I doing sales tax correctly? So they should let us handle that. We are experts who keep abreast of the laws because, like I told you, people are now charging um tax on some services. I should be keeping up with that. My job, like I said, is to keep you compliant and to educate you. I'm never gonna make a decision without you knowing it. But states, you can't say, well, I'm in the city of uh Colorado. I mean, I'm in the state of Colorado, but I'm in the city of Denver. Colorado didn't charge me for uh software as a service. Uh Denver said, yeah, but I'm I'm not silent. Right. And I'm gonna charge you. The same way with Illinois. Illinois doesn't charge you for software as a service, but Chicago does, and they call it a different type of tax. At least it's at least. And so it's just hard what it gets to, and it's complex. Um a lot of people like to say, why should salt? Why should I talk about salt? Salt is not important. Sales tax. I tell people when you go to a restaurant, you always see salt and pepper on the table. It's the condiment that's on the table. You don't always have to ask for it. You don't have to use it, but at least it's on the table. Right. So I like to say like salt likes has to be the condiment that's always on the table. That you, if you're selling something, um, and these nexus nexus is like prior to Wayfair, the Supreme Court case um from 2017, 2018, it used to just be physical presence nexus. But states said, hey, people are selling things right and making money, and we want our money. So they expanded Nexus, and people like to think physical presence went away. Physical presence didn't go away. Nexus just expanded. So for somebody in every one of those states have a different different Nexus threshold. Generally, it's$100,000 of sales in a state or 200 transactions. Okay. States are doing away with the transactions. So imagine a business who's trying to make that beautiful garment, trying to keep up with sales tax and what they should do. No. I and like I said, you pay for you, you should pay for that because it's it'll cost you more money in the long run to not have a sales tax advisor than to get one to say, Hey, you worry about that, and you tell me what I need to do, and I want to be compliant. Those are the best clients who go, D, I just want to be compliant. Yes, just help. Not the ones who go, Oh, well, that nexus study costs that much. You peace of mind for sales tax compliance, having somebody who's gonna keep up with all these nuances, like you said, these requirements, that's that's priceless. Yeah. And you're gonna pay for it alone. I have I have clients who go, no, not now. Then they'll call me back. I got an audit notice, and I'm like, well, you know, BDAs are off the table now, but I'm gonna help you through that audit because you don't want people going through audits alone either. Because they might, they might send the kitchen sink a D, I send them all my receipts for all these.

SPEAKER_02 36:12

No, you like, don't do that. Don't do that. They didn't even ask for that.

SPEAKER_00 36:15

Right. Or some things they asked for as an advisor, I might say, Well, state, why do you need that? Can I give you this instead? Because that's still gonna get you what you need. So, um, yeah.

SPEAKER_02 36:24

Doesn't open up other doors. Yes, right, potentially. Right. Okay. So before we wrap up, yes, I'd love to zoom out for a moment and talk about companies that are growing and expanding into new states. For businesses that are proactively thinking about growth, what steps should they be taking now to avoid sales tax exposure issues down the road? And are there proactive strategies beyond VDAs or audits that companies should have on their radar?

SPEAKER_00 36:53

Yes. So I say sales tax, income tax, all these things, but I'll focus on sales tax just for example, uh me, I mean for uh illustration states. It's a whole life cycle process. If you are selling something, I think the first thing you need to do, especially if you see your sales in multiple states, start exceeding$100,000. I think that's a good if you don't know anything else about sales tax, it's a good indicator. It's a good indicator. So y'all heard it here. Salty lawyer D said if you're selling something, think about$100,000 in state.

SPEAKER_01 37:26

Okay.

SPEAKER_00 37:27

And so you want to start off with knowing what you sell. People also overlook taxability. Somebody might tell me, I sell software. Everybody thinks they sell SaaS, software as a service. And I might say, Oh, did somebody buy software from you to do something? Oh no, we built a website for them. Well, you're a website developer, not a SaaS provider. So that's what I mean by companies think they know what they sell, but hire an expert again. So that's the first step. Knowing what you sell and how it's taxed.

SPEAKER_02 37:57

Categorize you properly. Exactly. That's very important. Okay.

SPEAKER_00 38:01

The second step is knowing your nexus. Like I said, you want to know, okay, where is it taxable? Do I have an obligation? Do I have physical presence there? Do I have economic nexus? That$100,000 we talked about. Um, then, like I said, once you do those things, it doesn't, it doesn't make sense to just do a nexus study without doing an exposure calculation, because that's like you just paid for nothing. Because, like I said, you can't manage what you can't measure. You haven't measured it. So starting there, taxability, nexus, exposure, remediation, mitigation. Like, is there some way that I can get that exposure down for you? Did your client perhaps accrue use tax because you didn't charge them sales tax? We love those people, right? Who you call them and you go, hey, Dee told me about Wayfair and I owe some money there. And that client goes, I'm savvy enough. I know you should have been charging me sales tax. I accrued it myself. Oh, great. Can you give me some documentation? I can tell the state. So, and after you do all that, pretty cleaning up the historical liability, enter the world of automation. Gone are the days where you can manually handle being in 45 states. Those are all there's only 45 states that tax sales tax. Um, you know, we have other states, but only 45 tax sales tax. People manually trying to keep up with that, that's hard. That's even hard for us who do this day in and day out. So enter the world of automation, like I said before, people and platforms. Your platforms, I always encourage my clients to get on automated solutions such as Avalair, ANROC, all that they're coming up every day. You want to get on those solutions, and but software is only as good as what the people put into it, and it won't work properly. So I think, and you keep on repeating that cycle. You keep on repeating that cycle. Every year, you're like, let me do a Nexus study. Oh, I just got a new product. Do I need to check and see if it's taxable? Because it might not be taxable in their state. Are they exempt customers that I need to put in process and procedures? So, salt, like I said, I can nerd out about this, but it is, it's very exciting, and growth is good, right? Right.

SPEAKER_01 40:08

Absolutely.

SPEAKER_00 40:09

If you're growing and you're in a lot of state, that's a good problem to have. And I think people get overwhelmed by salt. They're like, no, I don't want to be salty. It's like, no, come to me. I'll be salty for you. Right. But we want you compliant because you, what was the point of making this great business that grew a ton? As long as you're keeping up with that life cycle, heaven forbid we won't have any interest. We won't have any penalties because you're filing timely. And we're working with the platforms to configure it for you, to implement it for you. That's the beautiful thing about our team. We don't do just the consulting, we do the compliance as well. We're a one-stop shop and we're gonna manage software for you. But we're gonna be with you throughout the whole life cycle process. But talk to me more if you want to talk about voluntary disclosure agreements. Absolutely. And all things sales tax and income tax. And if you're preparing for MA, talk to me about that too. But yes, sales tax is amazing.

unknown 41:03

Thank you.

SPEAKER_02 41:03

Well, Dee, thank you so much for being on today. I thoroughly enjoyed this conversation. I personally learned a lot. I'm sure our listeners learned a lot and will be running to you because somebody out there might not be as compliant as they shouldn't. So thank you again, and I hope to see you back.

SPEAKER_00 41:20

Thank you so much, guys. And just parting words, don't get scared and overwhelmed. I know a number might shock you, but that's when you need to reach out to say, think mitigation and resolution. I'm always going to try to find a way to help you lower that sales tax liability and also to resolve it. Voluntary disclosure agreements are a strategic tool. If you haven't heard about it, look it up. But don't look it up too much because I want you to look me up and I'll educate you on it. But remember, voluntary disclosure agreements, BDAs, BDAs, BDAs.

SPEAKER_02 41:49

Thank you.

SPEAKER_00 41:50

Thank you.

SPEAKER_02 41:55

A big thank you to D Green, or better known as the Salty Lawyer, for sharing her insights on voluntary disclosure agreements, managed audits, and how businesses can better navigate multi-state sales tax exposure. If you found this conversation helpful, be sure to follow and subscribe to Beyond the Ledger so you never miss an episode. And if this topic raised questions about your own state tax strategy, our advisors at Bennett Thresher are always here to help. For more insights and resources, visit BTCPA.net. Until next time, I'm Sardet Layfield, and we'll see you back here for more conversations.