A California voluntary disclosure agreement is a route available through the California Department of Tax and Fee Administration (CDTFA) for certain out-of-state businesses that should have collected California use tax but did not register or file. For an eligible seller, the program can limit the assessment period for unreported use tax to the prior three years rather than eight years, and it allows the CDTFA to waive late-filing and late-payment penalties. Tax and applicable interest are still part of the resolution.
This is not a general amnesty program for every California sales tax problem. It is specifically designed for qualifying out-of-state retailers reporting use tax on sales to California consumers. Eligibility turns on the seller’s location, registration history, nexus, the reason for noncompliance, and whether the CDTFA has already contacted the business. Sales Tax Compliance USA provides a done-for-you review and filing service for ecommerce and cross-border sellers that need to assess the facts, prepare the historical work, and establish ongoing California compliance.
What is a California voluntary disclosure agreement?
The CDTFA’s Out-of-State Voluntary Disclosure Program gives certain unregistered retailers located outside California a structured way to come forward and report California use tax connected with sales to California customers. It is intended for a retailer that is engaged in business in California, did not register and file when required, and now wants to resolve that exposure voluntarily.
When the CDTFA approves a qualifying voluntary disclosure request, the agency may limit its assessment of unreported use tax to the prior three years instead of the otherwise applicable eight-year period. The program also allows the CDTFA to waive late-filing and late-payment penalties. It does not erase the underlying tax obligation, and interest may remain due.
For ecommerce sellers, the important distinction is that California calls the tax collected by many out-of-state sellers “use tax,” even though the customer experiences it as tax added at checkout. The correct account type, tax treatment, and eligibility analysis depend on the business facts. We review those facts before treating registration as the automatic next step.
Who qualifies for California voluntary disclosure relief?
The CDTFA lists five conditions for its Out-of-State Voluntary Disclosure Program. The retailer must be located outside California, must not have previously registered with the CDTFA or the former State Board of Equalization, must be engaged in business in California as defined by Revenue and Taxation Code section 6203, and must register voluntarily with the CDTFA.
The seller also must not have been previously contacted by the CDTFA or its agents about its California activities. In addition, the failure to register, file, or pay must have resulted from reasonable cause rather than negligence, intentional disregard of the law, fraud, or an intent to evade tax. These are fact-specific conditions, not boxes to check without support.
The program is aimed at an out-of-state business reporting use tax on sales to California consumers. A seller with a California location, inventory, employees, or other California operations should not assume this particular out-of-state program applies. The exact position depends on the circumstances; confirm it with the CDTFA, or talk to us and we will check the available path for you.
What can disqualify a seller from voluntary disclosure?
Prior contact from the CDTFA or its agents regarding the seller’s California activities can prevent eligibility. A business should not wait for a notice, registration inquiry, audit contact, or other agency outreach before evaluating voluntary disclosure. Voluntary disclosure is strongest when the seller comes forward before the state identifies the issue.
Prior registration is another major barrier. The CDTFA states that the Out-of-State Voluntary Disclosure Program is not applicable to a person holding or who held a seller’s permit, and the eligibility conditions require that the retailer not have previously registered with the CDTFA or the former State Board of Equalization. A lapsed account, old permit, or prior registration should be investigated before any submission is made.
The CDTFA also excludes purchases subject to California use tax and sales by persons, registered or unregistered, that are subject to California sales tax from this out-of-state program. Finally, facts suggesting negligence, intentional disregard, fraud, or an intent to evade tax can defeat relief. A careful disclosure should accurately explain the compliance history rather than overstate eligibility.
Assess California nexus before registering
Registration should follow a nexus analysis, not replace one. California can treat a retailer as engaged in business in the state because of physical presence or economic nexus. Relevant facts can include California inventory, personnel, representatives, events, affiliates, fulfillment arrangements, and sales activity. Marketplace sales also need attention because marketplace-facilitated sales can affect the economic-nexus calculation even when the marketplace collects tax on those particular transactions.
The CDTFA states that economic nexus exists when the retailer’s and related persons’ total combined sales of tangible personal property for delivery in California exceed $500,000 in the preceding or current calendar year. That calculation includes sales made on the retailer’s own behalf and sales facilitated through a marketplace facilitator’s marketplace. The threshold is important, but it is not the only way a business can have California nexus.
For sellers that have nexus, California’s district-tax rules add a practical complication. California layers district taxes on top of the statewide rate, and the applicable rate can depend on the delivery address down to street level. California is not a home-rule sales tax state: local jurisdictions do not independently administer their own sales tax systems. The CDTFA administers the sales and use tax system, including district taxes, but accurate destination-level tax sourcing remains essential.
When unregistered sellers should consider voluntary disclosure
An unregistered out-of-state seller should evaluate voluntary disclosure as soon as it identifies a possible period of California nexus and unfiled California use tax returns. Waiting can increase the chance that the CDTFA contacts the business first, which may remove access to the program. It can also make records harder to reconstruct and historical tax calculations more difficult.
A review is particularly useful after a seller discovers that California sales exceeded the economic-nexus threshold, stored inventory in California, began using a California fulfillment arrangement, hired California-based personnel, or otherwise developed a California connection. The review should establish when nexus began, what transactions were taxable, whether tax was collected, whether a marketplace facilitator handled any collection responsibility, and what customer-location data is available.
Do not treat every California sale as automatically requiring a voluntary disclosure. Some sellers may not have nexus, may have sales handled entirely by a registered marketplace facilitator, or may have a different registration and remediation issue. We map the actual sales channels and operational facts so that a seller can make a decision based on the correct California exposure.
How the California voluntary disclosure application works
For the out-of-state program, the CDTFA directs the retailer to complete electronic registration and obtain a California Certificate of Registration–Use Tax Account. Registration is completed through the CDTFA online services portal. The CDTFA’s registration process asks for business information, including projected sales and taxable sales, products to be sold, and other account details.
After registration, the seller completes Form CDTFA-38, Application for Out-of-State Voluntary Disclosure. The retailer must complete and submit Form CDTFA-38 within 30 days of registration. The application addresses the business’s California activities, registration history, and the circumstances behind the failure to register, file, and pay.
A seller that wants clarity before disclosing its identity can ask the CDTFA’s Voluntary Disclosure Specialist for an opinion about whether the agency would be inclined to approve a request. The CDTFA states that taxpayers may anonymously obtain a written opinion on potential approval. That preliminary step can be valuable where the facts are complex, but it does not substitute for a complete and accurate application.
What happens after you submit a voluntary disclosure application?
The CDTFA reviews whether the applicant meets the statutory and program conditions. Approval is not automatic simply because a retailer registers or submits Form CDTFA-38. The agency may need enough information to evaluate whether the seller was outside California, had not previously registered, had not been contacted, was engaged in business in California, and had reasonable cause for the historical failure to comply.
If the disclosure is approved, the seller resolves the historical reporting period under the program’s terms, files the required past-due returns, pays the tax and applicable interest, and requests penalty relief with the required written explanation. The CDTFA states that a request for penalty relief must be in writing, signed under penalty of perjury, and set out the facts explaining why late filing or late payment occurred.
After the historical work is completed, the business continues filing regular California returns through its CDTFA account. The CDTFA assigns filing frequency based on reported sales tax or anticipated taxable sales at registration. Assigned frequencies can include monthly, quarterly, quarterly prepayment, fiscal yearly, or yearly reporting, so the seller should follow the schedule shown in its account rather than assume one filing cadence applies to every business.
How far back do I need to file California tax returns?
For a seller that qualifies for the CDTFA Out-of-State Voluntary Disclosure Program, the CDTFA states that the assessment period may be limited to the prior three years. Without the program, the applicable statutory period is eight years. This is one of the program’s most meaningful benefits for an eligible out-of-state retailer.
The actual return periods still depend on the seller’s facts and the filing frequency assigned by the CDTFA. A three-year liability period may require multiple monthly, quarterly, or other returns. It is important to identify the correct nexus start date, apply the approved disclosure period, and reconcile each historical reporting period to sales records and tax collected.
Do not assume that three years applies before eligibility is confirmed. Prior registration, prior CDTFA contact, California sales-tax treatment rather than use-tax treatment, or other disqualifying facts may change the analysis. We can organize the records and determine the filing-period work needed for the route available to your business.
Calculate, file, and pay outstanding California tax
Historical California returns require transaction-level discipline. Start by separating taxable merchandise sales, exempt sales, sales for resale supported by proper documentation, refunded or canceled transactions, and sales for which a marketplace facilitator was responsible for collection. Then determine the delivery location for taxable direct sales, because California district taxes can change the applicable rate by delivery address.
The objective is not simply to apply one statewide percentage to all California revenue. California has a statewide sales and use tax rate plus district taxes, and district-tax obligations can depend on the place of delivery. For a retailer meeting California’s $500,000 combined-sales district threshold, the CDTFA states that the retailer is engaged in business in every district that imposes a district tax and must collect applicable district use tax on taxable sales delivered into those districts.
Outstanding tax must be paid when resolving the historical liability, and the CDTFA may charge interest. A voluntary disclosure does not make tax disappear or let a seller retain tax that should have been remitted. Where cash flow is an issue, the exact payment and resolution options should be confirmed directly with the CDTFA before relying on any approach.
How voluntary disclosure can reduce penalty exposure
The CDTFA states that its Out-of-State Voluntary Disclosure Program allows late-filing and late-payment penalties to be waived for qualifying participants. Penalty relief is not guaranteed. The seller must meet the program requirements, and the failure to register, file, or pay must have been due to reasonable cause rather than negligence, intentional disregard of the law, fraud, or an intent to evade tax.
The penalty-relief request requires a written statement signed under penalty of perjury that explains the facts causing the late filing or late payment. A persuasive request is specific: it connects the business’s compliance history, nexus facts, recordkeeping, discovery of the issue, and corrective action without making unsupported claims.
Interest is separate from penalties. The CDTFA’s description of the program identifies potential relief from late-filing and late-payment penalties and a shorter assessment period; it does not state that interest is automatically waived. Build the historical calculation with tax and potential interest in mind, then confirm the final liability with the CDTFA.
California compliance features that affect a voluntary disclosure review and ongoing filing
| California issue | What it means for an ecommerce or cross-border seller |
|---|---|
| Out-of-state voluntary disclosure scope | Designed for qualifying out-of-state businesses reporting use tax on sales to California consumers; it is not the CDTFA’s general solution for every sales-tax or purchase-use-tax issue. |
| Historical assessment period | For a qualifying participant, the CDTFA states the period may be limited to the prior three years rather than eight years. |
| Penalty treatment | The CDTFA may waive late-filing and late-payment penalties for a qualifying disclosure; tax and applicable interest remain part of the resolution. |
| Economic nexus | The CDTFA states economic nexus applies when combined sales of tangible personal property for delivery in California by the retailer and related persons exceed $500,000 in the preceding or current calendar year. |
| Marketplace sales | Marketplace-facilitated sales can count toward the California economic-nexus threshold, even where the marketplace facilitator collects tax on those sales. |
| Rate sourcing | California combines statewide tax with district taxes. For taxable deliveries, the rate can depend on the delivery address down to street level. |
| Local administration | California is not a home-rule sales tax state. The CDTFA administers the statewide sales and use tax system, including district taxes. |
| Ongoing return frequency | The CDTFA assigns monthly, quarterly, quarterly-prepayment, fiscal-yearly, or yearly filing frequency based on reported sales tax or anticipated taxable sales at registration. |
Frequently asked questions
What is a California voluntary disclosure agreement?
For an eligible out-of-state retailer, it is a CDTFA program for voluntarily resolving unreported California use tax on sales to California consumers. The CDTFA states that the program may limit the assessment period to the prior three years instead of eight years and may allow waiver of late-filing and late-payment penalties. The seller remains responsible for the underlying tax and applicable interest.
Who qualifies for the California voluntary disclosure program?
The CDTFA requires an out-of-state retailer that has not previously registered with the CDTFA or former State Board of Equalization, is engaged in business in California, registers voluntarily, has not been contacted by the CDTFA or its agents about California activities, and has reasonable cause for the failure to comply. The program is for reporting use tax on sales to California consumers. Eligibility is fact-specific and should be evaluated before registration.
What can disqualify a seller from voluntary disclosure?
Prior CDTFA contact regarding California activities, prior registration, or holding or having held a seller’s permit can prevent use of the out-of-state program. The CDTFA also excludes purchases subject to California use tax and sales subject to California sales tax from this program. Negligence, intentional disregard of the law, fraud, or intent to evade tax can also defeat eligibility.
How do I apply for a California voluntary disclosure agreement?
For the out-of-state program, complete electronic registration through the CDTFA online services portal for a California Certificate of Registration–Use Tax Account. Then complete Form CDTFA-38, Application for Out-of-State Voluntary Disclosure, within 30 days of registration. The CDTFA also allows taxpayers to seek an anonymous written opinion about likely approval before submitting a disclosure request.
What happens after I submit a voluntary disclosure application?
The CDTFA reviews whether you meet the program conditions and may evaluate the facts behind your registration history, California activities, prior contact, and reasonable-cause explanation. If approved, you complete the historical return and payment work for the applicable period and seek penalty relief with a written, signed explanation where required. You then continue filing on the frequency assigned to your CDTFA account.
How far back do I need to file California tax returns?
The CDTFA states that a qualifying out-of-state voluntary disclosure participant may have the assessment period limited to the prior three years rather than eight years. The number of returns within that period depends on the filing frequency assigned and the facts of the business. Do not assume the reduced period applies until the CDTFA confirms eligibility.
Do I have to pay all back taxes when entering a voluntary disclosure agreement?
Yes, voluntary disclosure is a way to report and resolve tax that should have been paid, not a waiver of the underlying tax. The CDTFA describes potential relief from certain penalties and a reduced assessment period for eligible sellers, while applicable interest may still be due. Confirm the precise payment requirements with the CDTFA based on your approved disclosure and account facts.
Can penalties be waived or reduced through voluntary disclosure?
Yes. The CDTFA states that the Out-of-State Voluntary Disclosure Program allows waiver of late-filing and late-payment penalties for qualifying sellers. Relief is not automatic: eligibility requires reasonable cause and the seller must provide a written request, signed under penalty of perjury, explaining the facts behind the late filing or payment.
How we handle this for you
The mechanics in California are manageable on their own; the cost is the time it takes every single filing period, in every state you are registered in. We are a managed service: our team registers you with the California Department of Tax and Fee Administration (CDTFA), prepares and files your returns, and keeps you compliant period after period. You get one point of contact and one invoice — you do not get another dashboard to learn.
See our sales tax compliance services, check where you have obligations with the nexus calculator, or talk to us about California.
Official sources
- https://cdtfa.ca.gov/taxes-and-fees/out-of-state.htm
- https://cdtfa.ca.gov/formspubs/pub178/out-of-state-voluntary-disclosure-program.htm
- https://cdtfa.ca.gov/formspubs/cdtfa38.pdf
- https://cdtfa.ca.gov/industry/out-of-state-retailers/registration.htm
- https://cdtfa.ca.gov/industry/MPFAct.htm
- https://cdtfa.ca.gov/industry/local-and-district-retailer-taxes/district-tax.htm
Reviewed by Paul le Roux, CA(SA). Sales Tax Compliance USA handles US sales tax registration, filing and remittance for cross-border and domestic ecommerce sellers as a fully managed service.
This page is general information for educational purposes and does not constitute legal or tax advice. Sales tax rules change and depend on your specific facts. Consult a qualified tax professional about your own position.