Exposure Quantification & Remediation Plan
Harbor quantifies the cost of every unregistered-nexus state under two scenarios — getting caught on audit vs. proactively disclosing — and recommends the cheaper, lower-risk path. It also scans the other direction for tax Hearthstone has been over-collecting and can recover.
Exposure by state (worst-case)
Back-tax + interest + penalty if assessed on audit
The net picture for the CFO
What it actually costs to get fully compliant
Acting now converts an unquantified, compounding ~$15.2M liability into a bounded ~$10.6M net outlay.
Unregistered-state exposure & remediation
Mississippi
Pursue a Voluntary Disclosure Agreement. The VDA caps the lookback at 3 years and waives the 25% failure-to-file penalty, saving ~$1,312,996 versus an audit assessment. Because exposure arose from economic nexus, the historical liability is bounded by the crossing date. Register prospectively on the VDA effective date.
West Virginia
Pursue a Voluntary Disclosure Agreement. The VDA caps the lookback at 3 years and waives the 25% failure-to-file penalty, saving ~$761,261 versus an audit assessment. Because exposure arose from economic nexus, the historical liability is bounded by the crossing date. Register prospectively on the VDA effective date.
Idaho
Pursue a Voluntary Disclosure Agreement. The VDA caps the lookback at 3 years and waives the 25% failure-to-file penalty, saving ~$739,609 versus an audit assessment. Long-standing physical presence makes the open (unfiled) period unlimited — the VDA's lookback cap is especially valuable here. Register prospectively on the VDA effective date.
New Mexico
Exposure is modest (~$2,006,616 worst-case). Register and begin collecting prospectively; the limited prior exposure can be reserved or addressed via a streamlined VDA if the state initiates contact. Penalty risk does not justify a full VDA negotiation.
Maine
Pursue a Voluntary Disclosure Agreement. The VDA caps the lookback at 3 years and waives the 25% failure-to-file penalty, saving ~$482,670 versus an audit assessment. Because exposure arose from economic nexus, the historical liability is bounded by the crossing date. Register prospectively on the VDA effective date.
Hawaii
Pursue a Voluntary Disclosure Agreement. The VDA caps the lookback at 3 years and waives the 25% failure-to-file penalty, saving ~$406,391 versus an audit assessment. Because exposure arose from economic nexus, the historical liability is bounded by the crossing date. Register prospectively on the VDA effective date.
Vermont
Pursue a Voluntary Disclosure Agreement. The VDA caps the lookback at 3 years and waives the 25% failure-to-file penalty, saving ~$222,419 versus an audit assessment. Long-standing physical presence makes the open (unfiled) period unlimited — the VDA's lookback cap is especially valuable here. Register prospectively on the VDA effective date.
Reverse audit — over-collected tax (recoverable)
Harbor scans both sides. These are amounts Hearthstone collected in error — recoverable via refund claims, with the AvaTax mapping fix to stop the leak.
| Finding | State | Category | Refund | |
|---|---|---|---|---|
| OC-01 AvaTax taxed apparel SKUs in Pennsylvania at the full rate. Pennsylvania exempts wearing apparel (72 P.S. § 7204(26)). 14 months of loungewear sales were over-collected. | PA | Loungewear, Robes & Slippers | $384,000 | |
| OC-02 Clothing taxed in New Jersey despite the full apparel exemption (N.J.S.A. § 54:32B-8.4). Mapping error in the AvaTax item code. | NJ | Loungewear, Robes & Slippers | $268,500 | |
| OC-03 Minnesota clothing exemption (§ 297A.67 subd. 8) not applied to robes and slippers. | MN | Loungewear, Robes & Slippers | $121,300 | |
| OC-04 Texas grocery-food items taxed where exempt; bakery/pantry SKUs mis-mapped to the taxable snack code. | TX | Gourmet Food & Snacks | $96,800 | |
| OC-05 California separately-stated common-carrier delivery taxed in error on ~3% of e-commerce orders (handling not parsed from freight). | CA | Shipping & Delivery Charges | $142,000 | |
| OC-06 Massachusetts $175-per-item apparel exemption not applied; items under the cap taxed in full. | MA | Loungewear, Robes & Slippers | $73,400 | |
| Total recoverable | $1,086,000 | |||