If your business has unreported sales or use tax liability in California, the Voluntary Disclosure Program (VDP) could be your best opportunity to come clean—with limited penalties and reduced audit exposure. Offered by the California Department of Tax and Fee Administration (CDTFA), this program gives qualifying businesses a structured path to compliance before the state comes knocking.
In this guide, we’ll break down who qualifies, how the process works, and what you need to prepare. And if you need expert help navigating the VDP, Hands Off Sales Tax (HOST) offers full-service support to get you back on track with confidence.
What Is California’s Voluntary Disclosure Program?
California offers two distinct Voluntary Disclosure Programs (VDPs), each designed to help taxpayers come forward and resolve unpaid sales or use tax—without triggering a full-blown audit.
Out-of-State VDP (RTC § 6487.05)
This program is intended for businesses located outside California that have nexus—such as remote sellers or out-of-state retailers who have been making taxable sales into California without a seller’s permit.
Key benefits include:
- A 3-year look-back instead of the standard 8-year period
- Waiver of late payment and filing penalties
- Option to receive a written opinion from CDTFA under anonymous conditions, helping assess your eligibility in advance
In-State VDP (RTC § 6487.06)
This applies to California-based purchasers—including businesses or individuals—who owe use tax on out-of-state purchases but hadn’t registered or filed. Similar benefits apply: a limited 3-year window, penalty relief, and eligibility confirmation through an anonymous opinion letter.
Why This Matters
These programs encourage voluntary compliance by offering structured relief and timelines. Whether you’re a remote seller or a California purchaser, voluntary enrollment provides legal certainty, administrative clarity, and protection from extensive audits—wrapping tax liability, penalties, and audit risk into manageable terms.
Who Is Eligible? Dual Pathways Explained
California offers two distinct Voluntary Disclosure Programs, tailored to different taxpayer types:
Out‑of‑State VDP (Sales Tax Remittance)
This pathway is designed for remote sellers or out-of-state businesses with California nexus—such as exceeding $500,000 in sales, maintaining inventory, or having in-state agents—but who do not have a seller’s permit and have not been contacted by CDTFA. Applicants must demonstrate that their failure to register or collect tax was due to reasonable cause, not intentional evasion. This option enables businesses to come forward voluntarily, obtain penalty relief, and limit their tax assessment to a three-year look-back period.
In‑State VDP (Use Tax Remittance)
This pathway applies to California purchasers, including consumers or businesses who use goods purchased outside California, owe use tax, but did not hold a seller’s permit. To qualify, you must not have been contacted by CDTFA regarding use tax and your failure must be for reasonable cause, similar to the out-of-state program. Like the out-of-state pathway, this route reduces liability to three years and allows penalty waivers.
Eligibility criteria across both pathways include:
- No previous contact from CDTFA regarding audits or collections
- Voluntary submission, not triggered by state inquiry
- Reasonable cause for past non-compliance
- Registration and filing must occur within the prescribed window after initial contact
By choosing the appropriate pathway—and ensuring you meet eligibility before outreach—you can proactively resolve historic obligations with clarity and control.
Why Use the VDP? Key Benefits
Choosing to enter California’s Voluntary Disclosure Program (VDP) offers strategic advantages that can significantly reduce your risk and financial exposure.
Shortened Look-Back Period
Under both the out-of-state (RTC §6487.05) and in-state (RTC §6487.06) pathways, eligible taxpayers are subject to a 3-year look-back instead of the usual 8 years of liability exposure.
Penalty Waivers
CDTFA typically waives late filing and payment penalties—sometimes even for collected but unremitted tax—provided the disclosure is made voluntarily and in good faith.
Written Pre‑Approval Opinion
California allows applicants to engage anonymously through an intermediary and obtain a binding written opinion letter from CDTFA before officially entering the program. This upfront clarity helps you assess eligibility without risking state contact.
Audit Protection
Once accepted, your agreement typically limits the audit scope to the agreed 3-year look-back. CDTFA commits to not requesting information beyond that period, giving you peace of mind to file accurately.
Strategic Control & Predictability
- Fixed terms around tax, interest, and compliance
- Avoid surprise audits or open-ended investigations
- Provides a clean slate for future compliance efforts
Voluntary disclosure gives businesses clarity and assurance. By engaging proactively, you gain control, limit risk, and secure legal protection—all with significantly less exposure than full-state audits.
Step-by-Step Application Guide
Here’s how to navigate California’s Voluntary Disclosure Program, step by step:
1. Contact the Voluntary Disclosure Specialist
Reach out to CDTFA’s Voluntary Disclosure Specialist before registering anything. Use email ([email protected]), phone (1‑916‑309‑5223), or mail (PO Box 942879, Sacramento, CA 94279‑0044) to describe your situation anonymously and request guidance.
2. Describe Nexus & Activities
Without revealing your identity, summarize your nexus (such as remote sales volume, in-state inventory, or customer use tax triggers) and business activities. The specialist helps determine if you qualify under the out‑of‑state (§6487.05) or in‑state (§6487.06) VDP pathway.
3. Submit Documentation & Requests
If eligible, you’ll complete and submit the appropriate forms:
- Out-of-State: Provide sales/use data, nexus evidence, and request the “3‑year look-back” and full penalty waiver.
- In-State: Complete CDTFA-38-I within 30 days of registration and similarly request benefits.
4. Formal Registration & Return Filing
Following conditional acceptance into the VDP, you’ll receive instructions to log into CDTFA Online Services using a standard account (username/password). If you don’t already have an account, CDTFA will guide you through creating one. Once logged in, you can register your business activity, file returns, and make payments for the agreed look-back period. Returns covering the approved disclosure window (usually 3 years) must be filed and paid as directed.
5. Timeline Expectations
Expect a response in 30–90 days after initial outreach. Upon approval, CDTFA will issue acceptance and filing instructions. Then schedule return submissions and payments according to their guidelines.
Following these steps correctly ensures smoother resolution and access to benefits. A misstep—especially revealing identity prematurely—can jeopardize eligibility. That’s why precise preparation and execution matter.
What Happens After Approval
Once CDTFA approves your Voluntary Disclosure Program (VDP) request, the process shifts from application to compliance. This phase is critical—it finalizes your tax obligations and locks in the program’s benefits.
File Returns and Pay Use Tax
You’ll be required to file returns for the agreed-upon look-back period, typically three years. CDTFA will provide instructions for return filing and payment through its online services portal. You must also remit the actual use tax owed along with accrued interest, as the VDP does not waive interest charges. Visit CDTFA’s Use Tax page for detailed guidance.
CDTFA Review and Audit Protection
Once returns are filed and payments are made, CDTFA will review your submissions. If approved, you gain protection from audits for earlier periods outside the disclosure window—this is one of the program’s biggest benefits. According to RTC §6487.05 and §6487.06, no further liability can be assessed for prior periods, assuming accurate and full disclosure.
Post-VDA Compliance Obligations
After participation, you must stay compliant with ongoing use tax obligations in California. This includes:
- Registering for applicable permits
- Filing timely future returns
- Maintaining accurate records for audit readiness
Failing to remain compliant may result in penalties and jeopardize your clean slate status. The VDP offers a rare second chance—but it’s up to you to maintain it.
Common Pitfalls & How to Avoid Them
Enrolling in California’s Voluntary Disclosure Program (VDP) offers valuable relief—but missteps can disqualify you or lead to penalties. Here are the most common pitfalls and how to steer clear of them.
Waiting for CDTFA to Contact You
You must apply before the California Department of Tax and Fee Administration (CDTFA) initiates contact. Any inquiry—whether by phone, mail, or audit—disqualifies you from the program. Avoid delay and act proactively.
Miscalculating Nexus or Underreporting
Many businesses misjudge what creates nexus, especially with remote sales, inventory in California (e.g., via FBA), or contractor relationships. If you downplay revenue or fail to identify a triggering activity, CDTFA may assess additional tax or reject your application. Review the nexus guidance before applying.
Overlooking Use Tax Obligations
In-state purchasers must report use tax on untaxed out-of-state purchases. Ignoring this leads to noncompliance—even if sales tax isn’t due. Refer to Use Tax Guidelines.
Submitting Incomplete Documentation
Lack of clear, complete records during application—such as transactional history or prior nexus triggers—can delay or deny approval. Gather and organize your documentation before initiating contact to improve your chances.
HOST: A Trusted Partner for VDPs and Long-Term Compliance
Navigating California’s Voluntary Disclosure Program (VDP) requires precision, speed, and strategy. That’s where HOST comes in—not just as a service provider, but as a partner in reducing your tax risk and restoring compliance.
Voluntary Disclosure Support:
HOST’s experienced team helps businesses discreetly evaluate eligibility, gather required records, and prepare all necessary VDP submissions—whether you’re a remote seller applying under RTC §6487.05 or an in-state purchaser seeking use tax relief under §6487.06. They also coordinate with CDTFA to request penalty waivers, shortened look-back periods, and ensure proper registration and filing once approved.
Comprehensive Sales Tax Solutions:
Beyond VDPs, HOST offers a full suite of sales tax compliance services to keep your business audit-ready year-round:
- Nexus studies and economic threshold monitoring
- Sales tax registration in all required states
- Return preparation and filing across jurisdictions
- Audit defense and notice resolution
- Resale certificate creation
- Custom tax matrix creation
Whether you’re catching up on past liabilities or staying ahead of new obligations, HOST provides one-stop expertise tailored to your risk level and industry.
Take Control Before the CDTFA Comes Knocking
California’s Voluntary Disclosure Program offers a rare opportunity: clear past tax liabilities without enduring the pain of a full-blown audit. But timing, documentation, and execution are critical—waiting too long or misfiling could cost you the protection the program offers. If you’re unsure whether you qualify or how to apply, don’t navigate it alone. HOST is the partner you need to assess your eligibility, prepare your submission, and handle the compliance details from start to finish. Reach out today for a tailored consultation and move forward with clarity and confidence.
Frequently Asked Questions
1. Who qualifies for California’s Voluntary Disclosure Program (VDP)?
Businesses with unreported sales or use tax liability who haven’t been contacted by the CDTFA may qualify. There are two tracks: out-of-state sellers with nexus and in-state purchasers who owe use tax but don’t hold a seller’s permit.
2. What are the benefits of applying for the VDP?
Key benefits include a reduced look-back period (three years instead of eight), penalty waivers, audit protection for earlier periods, and the ability to apply anonymously before disclosing business details.
3. How long does the VDP application process take?
Typically, it takes 30–90 days for the CDTFA to review and respond to a voluntary disclosure request, depending on the complexity of the case and the volume of applications.
4. Can I apply if I already received a notice from the CDTFA?
No. Once you’ve been contacted by the CDTFA about the liability in question, you’re no longer eligible for voluntary disclosure. This is why early action is critical.
5. Does the VDP eliminate all taxes owed?
No, the program waives penalties but still requires payment of taxes and applicable interest for the look-back period. However, it prevents older liabilities from being audited.
