Voluntary Disclosure Agreements for Gross Receipts Taxes: A Jurisdiction-by-Jurisdiction Look

Most conversations about Voluntary Disclosure Agreements center on sales and use tax. But sales tax is not the only tax where nexus can quietly develop, and it is not the only tax where a VDA can be the right tool to fix historic noncompliance. A growing number of states and cities impose a gross receipts tax, business and occupation tax, or business license tax, and these taxes often have their own nexus standards, their own registration requirements, and their own VDA programs, separate and apart from sales tax.

If a company has been generating revenue in one of these jurisdictions and has not been filing the applicable gross receipts or business tax, despite having nexus and being required to file, it may need a VDA to resolve that exposure, just as it would for sales tax.

Why Gross Receipts Taxes Are Often Overlooked

Gross receipts and business license taxes tend to fly under the radar for a few reasons.

• They are less familiar than sales tax. Most tax and finance teams are well versed in sales tax nexus. Fewer are equally versed in Washington's B&O tax or Ohio's CAT, simply because there are fewer of these taxes and they vary widely by jurisdiction.

• The nexus thresholds and rules differ from sales tax. A company might have carefully evaluated its sales tax nexus footprint without realizing that a state or city imposes a separate gross receipts tax with its own, sometimes lower, nexus threshold.

• They apply regardless of profitability. Unlike income tax, gross receipts taxes generally apply to total revenue, not net income, which means a company can owe the tax even in a loss year, and can be caught off guard by the amount of exposure that accumulates.

• Local business license taxes are easy to miss entirely. City-level license taxes, in particular, are often not on a company's radar unless someone has specifically mapped out where the company has a taxable presence at the local level, not just the state level.

Below is an overview of some of the more commonly encountered gross receipts and business license taxes, several of which have well-established voluntary disclosure programs.

State Gross Receipt Taxes

There are a number of states that have adopted gross receipt taxes, including Delaware, Ohio, Oregon, Tennessee, Virginia and Washington, which are discussed below.

Delaware Gross Receipts Tax

Delaware imposes a gross receipts tax on the total receipts of businesses selling goods or services within the state, with no general sales tax in Delaware to offset it. Rates and exemption thresholds vary by business classification. Because Delaware does not have a broad-based sales tax, some companies mistakenly assume the state has no transaction-based tax obligations at all, overlooking the gross receipts tax entirely. Delaware has a voluntary disclosure process that can be used to resolve unfiled gross receipts tax liabilities.

Ohio Commercial Activity Tax (CAT)

Ohio's CAT is a tax on gross receipts sourced to Ohio, with an economic nexus threshold based on Ohio-sitused receipts. Ohio has updated its CAT thresholds and filing requirements in recent years, which has drawn a number of companies into filing obligations they may not have previously had. Ohio offers a voluntary disclosure program for CAT, generally allowing a limited lookback period for companies that come forward before being contacted by the state.

Oregon Corporate Activity Tax (CAT)

Oregon's CAT, not to be confused with Ohio's tax of the same abbreviation, is a separate gross receipts-based tax enacted more recently, applying to businesses with substantial nexus and commercial activity exceeding a stated threshold. Because the tax is relatively new, a number of businesses that expanded into Oregon after the tax took effect may not have fully accounted for it in their compliance calendar. Oregon has voluntary disclosure procedures available through the Department of Revenue for businesses that identify a historic filing gap.

Tennessee Business Tax

Tennessee imposes a business tax on gross receipts from business activities conducted within the state, administered at both the state and local level. Businesses with a physical location in a Tennessee county or municipality are generally subject to business tax there, and out-of-state businesses can also trigger nexus based on economic activity. Tennessee has a voluntary disclosure program administered through the Department of Revenue that can address unfiled business tax liabilities alongside other Tennessee tax types.

Virginia BPOL (Business, Professional, and Occupational License) Tax

Virginia's BPOL tax is a local tax, administered at the city or county level rather than by the state, and is based on gross receipts attributable to business conducted within that locality. Because BPOL is locally administered, requirements, rates, and voluntary disclosure procedures can vary meaningfully from one Virginia locality to the next. Companies with a location or sufficient business activity in a Virginia city or county should evaluate BPOL exposure separately from state-level tax compliance, and many localities are willing to work through a voluntary disclosure process for unfiled BPOL returns.

Washington Business and Occupation (B&O) Tax

Washington's B&O tax is imposed on the gross receipts of businesses with nexus in the state, with different tax rates depending on the classification of business activity (retailing, wholesaling, service, and so on). Washington has an economic nexus standard for B&O tax purposes, meaning a company can trigger filing obligations based on sales into the state even without a physical presence. Washington's Department of Revenue offers a formal voluntary disclosure program, and companies that come forward before being contacted by the state can generally receive a limited lookback period and penalty relief.

Municipal Gross Receipt Taxes

In addition to the state gross receipt taxes, there are a number of cities around the country which impose gross receipt taxes, including Atlanta, Los Angeles, Philadelphia, Pittsburgh, San Francisco as well as a number of Municipalities in Washington state, all of which are discussed below.

Atlanta Business License Tax

Atlanta, along with many other Georgia municipalities, imposes an occupation tax or business license tax based on gross receipts for businesses operating within the city. As with other local gross receipts taxes, this obligation exists independently of state-level Georgia tax filings, and businesses with a location or sufficient business activity within Atlanta city limits should evaluate this exposure separately.

Los Angeles Business License Tax

Similar to San Francisco, the City of Los Angeles imposes its own business tax based on gross receipts, requiring businesses conducting activity within the city to register and file, regardless of separate state tax obligations. Los Angeles has historically offered a limited-lookback voluntary disclosure process for businesses that register and begin filing before being contacted by the city, making this an important one to evaluate for any company with a meaningful presence or customer base in the Los Angeles area.

Philadelphia Business Income and Receipts Tax (BIRT)

Philadelphia imposes its own Business Income and Receipts Tax, which, despite its name, includes a gross receipts component in addition to a net income component, applied to businesses engaged in activity within the city. Philadelphia has adopted an economic nexus standard for BIRT purposes, meaning a business can trigger filing obligations based on the level of sales or activity sourced to the city, even without a physical office or employees there. Because BIRT applies on top of both Pennsylvania state tax obligations and any other Pennsylvania local taxes a business may already be filing, it is easy for a company to address its state-level compliance while overlooking this additional city-level requirement. Philadelphia has a voluntary disclosure program that allows qualifying businesses to come forward, generally with a limited lookback period and abatement of certain penalties, provided the city has not already contacted the business.

Pittsburgh Business Taxes

Pittsburgh imposes several local business taxes that can apply based on business activity conducted within the city, including a payroll expense tax and other locally administered levies, in addition to any applicable Pennsylvania state filings. As with other Pennsylvania localities, these city-level obligations are separate from, and not automatically satisfied by, state tax compliance, and businesses with employees working in, or sufficient business activity conducted within, Pittsburgh should evaluate their local filing obligations independently. Businesses that identify a historic gap in Pittsburgh local tax filings can generally pursue a voluntary disclosure process with the city to resolve prior period exposure on more favorable terms than waiting to be identified through the city's own enforcement efforts.

San Francisco Gross Receipts Tax

San Francisco imposes its own gross receipts tax on business activity conducted within the city, in addition to any state-level California tax obligations. The tax applies based on gross receipts sourced to San Francisco, with rates varying by industry category. Because this is a city-level tax layered on top of state requirements, companies that have carefully addressed California state tax compliance can still have an unaddressed gap at the San Francisco level. San Francisco has administrative procedures for businesses to come forward and resolve prior period liabilities.

Washington Municipal Business and Occupation Tax

In addition to the state-level B&O tax, a number of Washington cities, including Seattle, Tacoma, and several others, impose their own separate municipal B&O tax on gross receipts earned within the city. These municipal B&O taxes are administered independently of the state Department of Revenue, often with their own registration requirements, thresholds, apportionment rules, and filing portals, meaning a company can be fully compliant with state B&O tax while still having unaddressed exposure at the city level. Because Washington does not have a single unified filing system covering both state and municipal B&O tax, this is a frequently overlooked layer of exposure for businesses that have only evaluated their statewide nexus footprint. Several of these municipalities offer their own voluntary disclosure procedures, generally following a similar limited-lookback and penalty-relief structure as the state program, and each city's program needs to be evaluated on its own terms.

Common Threads Across These Taxes

While each of these taxes has its own rules, several themes apply across the board.

• Nexus standards can be more permissive than income tax nexus. Several of these taxes apply based on economic activity or gross receipts sourced to the jurisdiction, without requiring the kind of substantial physical presence that some older nexus standards required.

• These taxes often apply regardless of profitability. A company operating at a loss can still owe meaningful gross receipts tax, which sometimes surprises finance teams focused primarily on income tax planning.

• Local taxes require their own nexus analysis. State-level compliance does not automatically cover city-level gross receipts or license tax obligations. Cities like San Francisco, Los Angeles, and Atlanta, along with Virginia's BPOL localities, need to be evaluated independently.

• Voluntary disclosure is generally available before the jurisdiction reaches out. As with sales tax, most of these jurisdictions offer meaningfully better outcomes, in the form of limited lookback periods and penalty relief, to businesses that come forward voluntarily rather than waiting to be contacted.

When a VDA Is the Right Tool

If a nexus review reveals that a company has been generating revenue in one of these jurisdictions, has met the applicable nexus threshold, and has not been filing the required gross receipts or business license tax, a VDA is generally worth pursuing for the same reasons it makes sense for sales tax: it caps the lookback period, typically reduces or eliminates penalties, and resolves the exposure in a structured, negotiated way rather than leaving it to be discovered later through an audit or a state data-matching program.

Because gross receipts and business license tax rules vary so significantly by jurisdiction, and because several of these taxes are administered locally rather than at the state level, it is worth conducting a jurisdiction-specific nexus study before assuming that a company's sales tax nexus footprint, or its state income tax filings, tells the whole story. A company can be fully compliant on sales tax and state income tax while still carrying meaningful, unaddressed exposure under a gross receipts or business license tax it never realized applied.

The Bottom Line

Gross receipts taxes, whether imposed at the state level like Washington's B&O tax, Ohio's CAT, or Oregon's CAT, or at the local level like San Francisco's, Los Angeles's, and Atlanta's business taxes, or Virginia's BPOL, are easy to overlook precisely because they are less familiar than sales tax and often administered separately from a company's other filings. When nexus exists and filings have been missed, these taxes are generally just as well suited to resolution through a voluntary disclosure agreement as any other tax type, and the same logic applies: coming forward before the jurisdiction does is almost always the better outcome.

This article is for general informational purposes and does not constitute legal or tax advice. Companies should consult a qualified state and local tax advisor to evaluate nexus and voluntary disclosure options for their specific facts and jurisdictions.