Sales Tax! Are You Fully Complying?
I hope you have managed to stay safe and well! We focus on resolving tax issues in Prince William County and throughout the lower Northern Virginia area.
Now, that you decided to enter the arena that is Entrepreneurship, be sure to keep your business in compliance. We find a number of businesses just starting out fail to register for a Sales and Use Tax ID within states in which they do business (and are required to complete registration – think Wayfair). If you’re unfamiliar with the Wayfair decision, the Wayfair decision established that states could require businesses to register and remit sales taxes to states in which that had previously, not established nexus, based on the state’s established metric, such as $200K of sales within the state. Should a business reach the threshold set forth by the state, then that business would be required to file sales and use tax returns, and remit sales taxes collected (even if you haven’t charged any sales tax on your products, you’d be responsible for forking over the applicable sales tax amount to the state).
Obviously, you want to plan accordingly, if you’re operating in an area such as ours. Where a business could very easily find itself conducting business across the river, in Maryland or DC. But, if you’re selling goods in whatever state you operate, you’re going to want to register for sales and use tax remittance. No one wants to battle an audit for past years’ sales, where no returns have been filed (or where sales have been underreported). A state can go after your business for underreporting, if your sales on the business tax return for a given year, do not match the sales from the business’s sale and use tax returns from that same year. Sales and use tax returns can be required on a monthly or quarterly basis, so it would be easy for a business owner to unintentionally have a discrepancy between the amounts of their sales tax returns, and the end of the year computation of sales placed on the income tax return, if care is not taken.
Contrary to popular belief, states are much harder to negotiate, and navigate around and through tax delinquency matters. If you haven’t registered in all of the jurisdictions that you’re required to, unfortunately, you’re in good company. Studies show that 98% of all small businesses are failing to be in full compliance with their sales tax requirements. This is in most part due to the major pivot of a great deal of small businesses to e-commerce. These businesses will need to confront the harsh reality of modern interstate commerce. New “Wayfair” state and local tax regimes loom large in complexity and liability. But you want to make sure you comply, because penalties, and interest of noncompliance could drive some small businesses into bankruptcy.
Whether Sales and Use Tax is front of mind for you, or you’ve conveniently placed it on the backburner with all the other tasks that no one can find the time to perform, its important to get in front of the issue as soon as you can. There are even programs like voluntary disclosure where states allow you to voluntarily get back in to compliance, and in some instances even abate penalties or a portion thereof, for voluntarily coming forward. Should you find yourself on the wrong end of a Sales and Use Tax Audit, we would be happy to help you with your representation needs. Please feel free to contact us