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What “catching up” on sales tax actually means

If you've been selling across state lines without filing sales tax returns, you have back obligations. Every state has a lookback period — typically 3 to 4 years — during which they can assess tax, penalties, and interest on unfiled returns. The longer you wait, the more periods accumulate, and the more the penalties compound. Most states impose a 10–25% penalty on unpaid tax, plus interest that runs from the original due date.

“Catching up” means identifying which states you owe, calculating the back-period liabilities, filing the missing returns, and either paying in full or negotiating a settlement. Done proactively — before a state contacts you — it almost always costs less.

Voluntary Disclosure Agreements (VDAs)

Most states offer a program called a Voluntary Disclosure Agreement (VDA). A VDA is a formal arrangement between you and the state tax authority: you come forward proactively, disclose your obligation, and the state agrees to limit how far back they look and to reduce or eliminate penalties.

Typical VDA terms: the state limits the lookback to 3–4 years (rather than potentially going back further under audit), waives all or most penalties, and may reduce interest. The application process is usually anonymous — you (or a representative like Taxero) submit the application without identifying your business, and the state agrees to terms before you reveal who you are. This protects you if negotiations don't go as planned.

Most states that have sales tax participate in some form of voluntary disclosure program, either through the Multistate Tax Commission's national VDA program or their own state-specific process. Not every seller qualifies — if a state has already contacted you about an audit, VDA is typically no longer available. This is why acting before you receive a notice matters.

What to expect in the catch-up process

Taxero approaches catch-up filing in four stages:

1. 1Exposure review. We analyze your sales data to determine which states you have nexus in, when that nexus began, and what the back-period liability looks like. This tells you which states matter and roughly what you owe.
2. 2Strategy determination. For each state, we determine whether to pursue a VDA (typically better if you're penalty-sensitive and below the audit radar) or standard late registration (faster but more expensive). Some states are better VDA candidates than others.
3. 3Return preparation. Taxero prepares the back-period returns for each state — monthly, quarterly, or annual filings depending on the state's assignment. Each return reflects actual sales into that state for that period.
4. 4Filing and registration. Returns are submitted, registrations completed, and you move from exposure to compliance. Going forward, Taxero manages your regular filing cycle so you don't end up in this situation again.

What outcomes look like

Most sellers who catch up proactively face significantly lower penalties than those who wait to be audited. State audits are adversarial, slower, and often surface more periods than a voluntary disclosure would have covered. A seller who comes forward owing $8,000 in back tax and $2,000 in penalties through a VDA is in a far better position than one who gets audited and owes the same tax plus full penalties, interest, and audit costs.

Catch-up filings at Taxero are $19.99 per return — the same price as a current-period return. There's no monthly fee and no minimum commitment. If you owe back returns in 3 states across 4 years (12 returns each), you know exactly what the filing cost is upfront.