What Happens if You Mess Up a Sales Tax Filing

Last week we talked about all of the different filing frequencies and deadlines you have to manage with your sales tax obligation. If you missed that – check it out! But what happens if you accidentally miss one of those deadlines, or you didn’t realize your deadline had changed?

Trying to meet your sales tax obligations across many different states confronts you with a head-spinning assortment of deadlines and filing frequencies. States and other jurisdictions are very different in how they deal with taxes – especially sales taxes.

So many deadlines

With sales and use tax compliance, there are six primary deadlines each month – 7^th, 10^th, 15^th, 20^th, 25^th and 30^th – without considering the odd due dates for certain states such as the 12^th, 23^rd, 24^th and so on. A further complication is that the amount of information required on each return varies with each state and local jurisdiction.

Some jurisdictions take prepayment requirements for larger tax amounts. These prepayments are often on a different filing schedule and can be more frequent. A state may also require that you file on one date and pay on another or that you remit shortly after collecting the tax (aka “accelerated remittance”). Other factors affecting due dates: holidays, state furlough days, weekends and pandemic or other natural disaster filing relief.

Missing a filing deadline or making a serious (repeated or obviously intentional) error on your return typically exposes your company to penalties and interest from a tax jurisdiction – similar to what happens with a bad filing of tax returns with the Internal Revenue Service. Generally, the more sales tax deadlines you miss with states, the bigger the penalty gets – even to the point of collections and civil or criminal proceedings.

Assuming you have nexus in a jurisdiction and an obligation to file a sales tax return (in some states you don’t even have to owe tax to have a filing requirement), the amount of the penalty is generally up to individual jurisdictions and states.

For example, in New York failing to file or timely file a return with no tax due will cost you $50. Filing a return late by 60 days or less in the Empire State will cost you 10% of the tax due for the first month plus 1% for each additional month or part of a month up to 30% of the tax due. The penalty increases slightly if you get your NYS sales tax return in after 60 days. The same holds true, more or less, for Texas.

Georgia hits you with about 5% of the tax due per month; file a phony return and you’re on the hook for half the tax due. In Minnesota, the tab is 5% of any tax not paid by the regular due date, and another 5% for each additional 30 days or fraction of 30 days that the tax isn’t paid in full, up to 15%.

Sometimes there’s wiggle room. California “[reviews] each situation to determine if there was reasonable cause or an unforeseen circumstance that resulted in you failing to pay your taxes.” Excuses that can get you out of a penalty include if the unreported tax averages less than $1,000 each month or unreported tax is less than 5% of the total tax due from that period. Sacramento will also give you a break for a good payment and filing history, cooperation after a tax notice, a death or serious illness in the immediate family, a natural disaster or catastrophe directly affecting the business – or if the state sent tax returns to a wrong address.

Maryland socks you with a late-filing penalty of 10% and interest at a rate of not less than 1% per month. Annapolis goes further by threatening a lien against you or your business if you refuse or fail to follow through on arrangements of payments.

If you’re thinking it’s only your business who is at risk, you’d be wrong. Sales tax mistakes and non-compliance for sales tax can extend to owners, directors, shareholders, officers and even employees (and personal assets aren’t out of bounds for collections), this is due to responsible party laws. If you are not aware of these laws, we advise you to ensure you are not personally at risk for your company’s potential mishandlings. 

Avoid problems

Those “legal processes” that Maryland mentioned can be punishing. It’s plain that states take sales tax filing seriously – and the more severe the filing problem, the harsher states get. Best to head off a problem before it starts.

Get an accurate tax calendar telling you where you’re registered for sales tax purposes, the filing frequency of each return, login credentials, information needed in the return and method of delivery and other information specific to all the jurisdictions where you have nexus.

You may be tempted to depend on software to manage this, but filing frequencies can change fast and can change with little warning. With a software, there still needs to be a physical person monitoring notices and making adjustments within the software. Who is doing that for you?

Don’t let sales tax compliance overwhelm you. Rely on sales tax experts to maintain your compliance. Contact TaxConnex to learn what it means when sales tax is all on us.