Intermediate Quick Answer
What is the risk of waiting to register vs. registering proactively?
⚡ TL;DR
Every month without a permit adds uncollected tax liability, late filing penalties of 5–25% of tax due per period, and interest from each original due date. States can audit back 3–6 years from when nexus began. A VDA can limit lookback and waive penalties, but the underlying tax and interest are still owed.
The risk compounds monthly. Every period you operate with nexus but without a permit adds uncollected tax liability, penalties, and interest. The exposure is often larger than sellers expect because states audit back multiple years, not just the current period.
Key takeaways
- Uncollected tax is still owed to the state, failing to collect from customers doesn’t reduce your liability; it just means the money comes from your revenue instead of the buyer’s payment
- Late filing penalties: typically 5–25% of tax due per return period, applied to every unfiled return in the exposure window
- Interest: accrues from the original due date of each unfiled period, not from when you register, years of interest add up significantly
- States audit back to when nexus began: often 3–6 years under typical statutes of limitations; some states go longer if fraud is alleged
- A Voluntary Disclosure Agreement (VDA) can limit lookback to 3–4 years and waive penalties, but not interest, and not the underlying tax
- Proactive registration before you cross the threshold costs nothing and eliminates all of this exposure: the risk/reward of waiting is almost always negative
Frequently asked questions
What is the risk of not registering after I cross a nexus threshold?
Every month you collect without a permit accumulates uncollected tax liability, late filing penalties (typically 5–25% of tax due per period), and interest accruing from the original due dates. States can audit back to when nexus began, often 3–6 years. The tax is still owed even if you didn't collect it from customers. A Voluntary Disclosure Agreement can compress the lookback period to 3–4 years and waive penalties, but you still pay the underlying tax plus interest.
Is there a grace period after crossing the threshold?
Technically yes in some states: a brief window between crossing the threshold and when collection is required. But this is measured in days to weeks, not months. After that window, collection is required. Most sellers who discover a threshold crossing late are already well past any grace period.
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