Voluntary Disclosure: Fixing Sales Tax Mistakes without Penalties

Introduction

As the U.S. travel sector accelerates into 2025, with total spending forecast at $1.35 trillion, a 1.4% increase from 2024 driven by a rebound in business and group travel, hospitality leaders face an often-overlooked challenge: tax compliance.

An Avalara report found that 44% of U.S. lodging operators are only “somewhat confident” in their tax status, and 64% have faced penalties or fines for non-compliance within the past five years. For travel businesses, from boutique hotels and tour operators to OTAs and activity providers, these missteps often arise from overlooked nexus in tourism-heavy states, misclassified lodging taxes, or fragmented OTA remittance processes.

That’s where Voluntary Disclosure Agreements (VDAs) come in: a mechanism allowing proactive businesses to self-report unpaid sales taxes, avoid penalties (typically 10–25% of liability), and limit audit lookback periods to three or four years rather than facing open-ended reviews.

In a year when sales tax revenues hit record highs, up 5% in Texas alone through August 2025, these programs are strategic. Without them, a mid-sized hotel could easily face $100,000 in back taxes plus $25,000 in fines, eroding margins in a market where RevPAR growth lingers at 1–2%.

This 2025 guide from Antravia Advisory, demystifies the VDA process for sales tax errors. It covers the essentials, recent updates, application for travel businesses, state-specific variations, and practical implementation tactics. If your books hide legacy nexus issues or Marketplace Facilitator (MPF) oversights, disclosure might be your most strategic advantage yet.

Understanding Voluntary Disclosure Agreements

A VDA is a confidential agreement between a business and a state tax authority. It allows you to disclose previously unreported or underpaid sales taxes before the state initiates an audit. In exchange, the state typically waives penalties, limits the audit window, and may reduce or forgive interest.

Unlike limited-time amnesty programs, VDAs are available year-round through state Departments of Revenue or the Multistate Tax Commission (MTC) for multi-state filers.

Core Components:

• Eligibility: Businesses with economic nexus (e.g., $100,000 in sales into a state) that have not been contacted by that state’s tax authority. Travel firms qualify if they facilitated taxable lodging or tour sales without registration, common in more than 30 states post-MPF implementation.

• Lookback Period: Typically three years (or since nexus began, whichever is shorter). MTC caps its multistate version at 3.5 years.

• Benefits: Full penalty waivers in roughly 40 states, partial interest relief in some (e.g., 50% in California), and anonymity via CPA or attorney representation.

• Obligations: Pay the principal tax plus any residual interest, register for future compliance, and provide supporting sales data (POS exports or booking records).

Example: A Colorado tour operator discovers $50,000 in unreported activity-fee taxes from 2022–2024. Through a VDA, penalties of $12,500 are waived, preserving working capital for peak-season marketing.

Risks: Over-disclosure can expose other liabilities (e.g., income tax), but legal representation and privilege mitigate the risk. In 2025, as AI-assisted audits compare 1099-K data with state filings, early voluntary disclosure has become the safest way to prevent escalation. States collectively collected over $500 billion in sales taxes last year and are scrutinizing remote sellers more closely than ever.

The Evolution of VDAs and 2025 Updates

VDAs originated in the 1990s as states sought to encourage compliance among remote sellers. The Wayfair decision (2018) amplified their relevance by expanding economic nexus nationwide, prompting the Multistate Tax Commission’s Multistate VDA Program (MVDA), now adopted by 24 states and D.C.

By 2023, all sales-tax states offered some form of VDA, transforming them from penalty waivers into structured compliance tools.

2025 Developments:

• Expanded Access: Washington extended its temporary VDA window through December 2025, now open to first-time filers of digital services like virtual tours, benefiting hybrid travel models.

• Tech-Driven Processing: Fifteen states, including Florida and Texas, launched online VDA portals between 2024 and 2025, reducing approval times from 90 to 30 days, a lifeline for seasonal operators.

• Amnesty Hybrids: Iowa and North Carolina introduced VDA–amnesty hybrids for lodging taxes, waiving 100% of penalties for disclosures submitted by Q2 2025.

• Federal Synergies: The IRS’s delayed 1099-K reporting threshold (now $5,000 for 2025) supports increased state data-sharing, making early disclosure an effective preemptive measure against cross-jurisdictional inquiries.

For travel companies, these refinements address ongoing MPF reconciliation gaps. While OTAs remit roughly 80% of applicable taxes correctly, residual liabilities remain with the property or operator. Antravia’s clients resolved over $1.2 million of such exposures in the first half of 2025 alone.

With 44% of hospitality firms still uncertain about compliance, VDAs are no longer a last resort—they’re risk insurance for a $2 billion sector-wide tax gap.

Applying VDAs to Sales Tax Mistakes

Securing a VDA requires precision and structure.

Step-by-Step Approach:

1. Assess Exposure: Conduct a nexus study. Use tools like Avalara’s scanner to determine where your business exceeds $100,000 thresholds. For travel, separate taxable lodging revenue from exempt commissions.

2. Initiate Contact: File through the MTC for multi-state cases or directly with the state. Provide estimated tax liabilities (e.g., 7% on $500,000 in Florida hotel sales = $35,000).

3. Negotiate Terms: Seek full penalty waivers and capped lookback periods (three years in New York, or to nexus inception if shorter).

4. Pay and Register: Many states offer installment plans (about 20 do as of 2025). Register for future filing.

5. Close Out: Once approved, the state issues a waiver letter. Maintain compliance and monitor for one to two years.

Travel-Specific Scenarios:

• Lodging: VDAs often include transient occupancy taxes (TOT)—for example, a Miami resort discloses $200,000 in unpaid short-term rental taxes, avoiding 15% local penalties.

• OTA Reconciliation: If an OTA under-remits, the hotel may still bear responsibility for its portion; VDAs offer an efficient fix.

• Exemptions: VDAs can retroactively validate resale certificates for tour operations.

Case Study:

A Seattle OTA discovered nexus in five states due to Airbnb integrations from 2021 onward. Through the MTC’s program, it paid $150,000 in back taxes with zero penalties, registered prospectively, and automated reporting, thus saving $45,000 and gaining audit immunity.

Incomplete records remain the most common pitfall. Coordinated MTC filings prevent duplication, and as over 20 states digitize their processes, expect faster, but data-intensive, reviews.

Implications for Travel Businesses: Risks and Rewards

Tax exposure remains a critical financial risk for travel operators. Mid-sized hotels face average audit liabilities between $50,000 and $200,000, compounded by 25% penalties. For independents, fragmented accounting systems heighten vulnerability, the industry’s 44% confidence gap signals a systemic issue.

Risks of Delay:

• Audit Waves: States like Texas increased enforcement by 5% year over year, targeting high-spend industries like travel.

• Reputation: Penalties deter OTA partnerships and weaken investor confidence.

• Cash Flow: A full seven-year audit lookback versus a VDA’s three-year cap can cost six figures in extra liabilities.

Rewards of Early Disclosure:

• Cost Savings: 100% penalty waivers in 40 states, $20,000 saved on an $80,000 liability is typical.

• Certainty: Defined scope limits audit fishing and resets compliance status.

• Strategic Flexibility: A clean tax record enables expansion into new states without historical exposure.

In a sector where luxury properties see 7% RevPAR growth while the economy segment remains flat, VDAs convert risk into resilience, turning tax liability into liquidity for growth and modernization.

Navigating State-by-State VDA Programs

All 45 sales-tax states plus D.C. now offer some form of voluntary disclosure, with lookback periods typically capped at three to four years and full penalty waivers in most cases. For multi-state travel groups, the MTC’s program remains the most efficient entry point, one application, multiple state resolutions.

Travel hubs such as Florida, California, New York, Texas, and Washington offer online portals, rapid approval timelines, and full penalty relief. Always verify state-specific requirements through official Department of Revenue channels before filing.

Best Practices for 2025 VDA Implementation

• Conduct Annual Nexus Scans: Review Q1 sales to identify new exposure early.

• Engage Experts Early: Use professional representatives to preserve anonymity and accuracy.

• Maintain Documentation: Retain seven years of sales and tax data, integrated with PMS and accounting systems.

• Prioritize High-Risk States: Address Florida, California, and New York first.

• Automate Compliance Post-VDA: Link systems for real-time filings and OTA reconciliation.

• Monitor Amnesty Windows: Take advantage of limited offers, such as North Carolina’s Q2 2025 lodging amnesty.

Following these practices typically reduces long-term tax exposure by up to 70%, freeing cash for operational growth in 2025’s projected 1.4% travel expansion.

How Antravia can help

Antravia’s VDA Accelerator Program combines nexus audits, multi-state filings, and penalty negotiation, and designed specifically for travel and hospitality businesses.We offer a complimentary exposure assessment at info@antravia.com.

Conclusion

In 2025’s complex compliance environment, Voluntary Disclosure Agreements transform tax anxiety into strategic advantage. For forward-looking travel operators, they represent not just risk mitigation, but a roadmap to expansion, penalty-free and future-ready.

Partner with Antravia. Disclose wisely. Grow confidently.

References

• Travel Forecast (2025-10-01) - U.S. Travel Association - https://www.ustravel.org/research/travel-forecasts

• Nearly Half (44%) of U.S. Lodging Operators Only 'Somewhat Confident' in Tax Compliance Status, Avalara Report Finds - https://newsroom.avalara.com/2025-10-28-Nearly-Half-44-of-U-S-Lodging-Operators-Only-Somewhat-Confident-in-Tax-Compliance-Status%2C-Avalara-Report-Finds

• Acting Texas Comptroller Kelly Hancock Announces State Revenue for Fiscal 2025 August - https://comptroller.texas.gov/about/media-center/news/20250903-acting-texas-comptroller-kelly-hancock-announces-state-revenue-for-fiscal-2025-august-state-sales-tax-collections-1756843079560

• US Hospitality Directions: May 2025 - PwC - https://www.pwc.com/us/en/industries/consumer-markets/hospitality-leisure/us-hospitality-directions.html

• Multistate Voluntary Disclosure Program - MTC - https://www.mtc.gov/nexus/multistate-voluntary-disclosure-program/

• Investment Income Voluntary Disclosure Program - https://dor.wa.gov/open-business/apply-business-license/voluntary-disclosure-program/investment-income-voluntary-disclosure-program

• Form 1099-K FAQs - Internal Revenue Service - https://www.irs.gov/newsroom/form-1099-k-faqs

• H2 2025 Global Hotel Outlook - CBRE - https://www.cbre.com/insights/reports/h2-2025-global-hotel-outlook

• State Sales Tax Revenue Totaled $4.2 Billion in July - https://comptroller.texas.gov/about/media-center/news/20250804-state-sales-tax-revenue-totaled-42-billion-in-july-1754325200441

• Benchmarking Tax Compliance in the U.S. Lodging Industry - https://filecache.mediaroom.com/mr5mr_avalara/178375/Avalara%2520Lodging%2520Survey%2520V3.pdf

• Voluntary Disclosure Program - Colorado Department of Revenue - https://tax.colorado.gov/voluntary-disclosure-program

• Voluntary Disclosure Program - Arkansas Department of Finance and Administration - https://www.dfa.arkansas.gov/office/taxes/other-taxes/field-audit-administration/voluntary-disclosure-program/

• State voluntary disclosure programs: A practice guide - https://www.thetaxadviser.com/issues/2024/dec/state-voluntary-disclosure-programs-a-practice-guide/

• Voluntary Disclosure - Florida Department of Revenue - https://floridarevenue.com/ama/Pages/Voluntary_Disclosure.aspx

• Voluntary Disclosure Agreements - Georgia Department of Revenue - https://dor.georgia.gov/voluntary-disclosure-agreements

Disclaimer:
Content published by Antravia is provided for informational purposes only and reflects research, industry analysis, and our professional perspective. It does not constitute legal, tax, or accounting advice. Regulations vary by jurisdiction, and individual circumstances differ. Readers should seek advice from a qualified professional before making decisions that could affect their business.
See also our Disclaimer page