I haven't been collecting sales tax — what do I do now?

Stop collecting is not an option, you need to start immediately. But the more important question is what to do about the past. Here’s how to think through your exposure and which path resolves it cleanly.

Step 1: Figure out where you actually have nexus

Before you can resolve anything, you need to know where your obligation exists. Nexus comes from two places:

Physical nexus: any state where you have or have had:

• A remote employee or contractor working from there
• FBA inventory or third-party warehouse storage
• An office, retail space, or warehouse you lease or own
• Trade show activity with sales

Economic nexus: any state where your annual sales to customers have exceeded the threshold (typically $100,000). If you’ve been selling nationally for several years, you’ve likely crossed this in more states than you realize.

Run through both lists honestly. For economic nexus, pull your sales data by state for the past three years and check it against each state’s threshold. This exercise is uncomfortable, but it’s the only way to know the actual scope of what you’re dealing with.

Step 2: Understand what your exposure actually is

For each state where you have nexus:

1. When did nexus begin? For physical nexus, it’s the day the employee started or the inventory arrived. For economic nexus, it’s the date you first crossed the threshold.
2. How much taxable revenue did you have in that state, starting from that date?
3. What is the applicable tax rate? This varies by state and often by city/county within the state.
4. Have you collected anything? If you collected tax but didn’t remit it, that’s a different (more serious) situation than simply failing to collect.

The number you arrive at (taxable revenue × applicable rates × number of periods) is your gross back-tax exposure. Before you do anything else, know this number.

Step 3: Choose your resolution path

You have three options. Only two of them actually work.

Option A: Voluntary Disclosure Agreement (VDA)

A VDA is a formal arrangement where you proactively approach a state to disclose your non-compliance and settle on agreed terms. In exchange for coming forward voluntarily, states typically offer:

• Limited lookback period: usually 3–4 years, regardless of how long your actual exposure runs
• Penalty waiver: you pay the back taxes and interest, but penalties (which can be 10–25% of the tax owed, per period) are waived
• Clean resolution: once the VDA is closed, that period of exposure is settled

VDAs are the right path when your exposure is significant, more than a year of uncollected tax in multiple states, or any situation where the full retroactive liability would be painful. The penalty waiver alone can be substantial.

The Multistate Tax Commission (MTC) runs a multi-state VDA program that lets you file in multiple states simultaneously with a single application, useful when you have exposure in 5, 10, or 20 states at once.

Related: Can a VDA protect me from penalties and interest on past-due taxes?

Option B: Register retroactively and pay directly

For smaller, clearly-bounded exposure (a single state, a short gap, a low dollar amount) you can register in the state, file back returns for the missed periods, and pay what you owe including penalties and interest.

This is simpler than a VDA and appropriate when the exposure is limited. The downside: you pay full penalties with no protection, and the lookback period is determined by the state rather than negotiated. Most states have a 3–6 year statute of limitations on self-assessed returns; some have no limit for unfiled periods.

Option C: Do nothing

Not a real option. The exposure doesn’t go away. States routinely receive 1099-K data from Amazon and other marketplaces, purchase nexus questionnaires from their own procurement processes, and other data that surfaces non-compliant sellers. Discovery risk is real and grows over time. The penalty for state-discovered non-compliance is significantly worse than voluntary disclosure.

Step 4: Start collecting going forward immediately

Regardless of which retroactive path you choose, start collecting sales tax in your current nexus states now. Continuing to not collect while you work through the back-tax situation compounds your exposure and gives you nothing useful.

If you’re using Shopify, WooCommerce, or another platform, configure tax collection for every state where you currently have nexus. If you don’t have a sales tax platform handling filing and remittance, get one set up before your first collection period closes.

The most common mistake at this stage

Sellers who discover they haven’t been collecting often do a partial fix: they register in one or two obvious states, start collecting there, and leave the rest unaddressed. This creates a false sense of resolution. The states you didn’t address still have your exposure on the table, and the ones you did register in now have a clear record that you were operating before your registration date.

A clean resolution means addressing all your nexus states (not just the obvious ones) through a coordinated approach, usually the MTC multi-state VDA.

What to do if you received a notice from a state

If a state has already contacted you: a nexus questionnaire, a demand for records, a notice of assessment: the VDA window may be closed for that state. At that point, the situation becomes a dispute or audit response rather than voluntary disclosure. Consider engaging a sales tax attorney or CPA who handles state tax controversy before responding.

Related: What should I do if I receive a sales tax notice from a state?