Sales Tax Mistakes: How To Avoid Them and How To Find a Reliable Sales Tax Partner
The NHL's Arizona Coyotes said it has paid $1.3 million in delinquent sales taxes to Arizona after the Department of Revenue filed a public lien against the team. How did this happen? The Coyotes say that they were filing returns each month as required and inadvertently did not hit the "remit" button. They say this was not a deliberate mistake and they are taking steps to make sure it never happens again . . . so the questions for the rest of us? How do mistakes like this happen? How do we avoid mistakes like this? In September we spoke at the Institute For Professionals in Taxation Sales Tax Conference on choosing a reliable sales tax partner. How do you find a reliable sales tax partner?
How do mistakes like this happen?
In hockey, penalties are commonly given to a player who violates a rule of the game. Sometimes this violation is intentional and sometimes it’s just human error, plain and simple. This is no different than in sales tax. When there is tax collected and not remitted, the penalties can be more severe whether intentional or not! The act of collecting tax but not remitting it to the state is what we like to refer to as the cardinal sin of sales tax. Why is this so bad? Why can’t they just pay it and move forward? That might seem like a seamless solution, however, it is such a large problem because the money collected is generally not the company’s money. It is generally either the customer’s money or the state’s money. Companies are generally collecting the tax from their customers in trust for the state. In effect, they are the tax collectors. Utilizing tax dollars that are not yours can be portrayed as unjust enrichment by the state, or to put it frankly, fraud.
How do we avoid mistakes like this?
Though it seems simple, mistakes like this can be avoided by always double-checking if you are remitting or by doing the preliminary work of ensuring you have a reliable sales tax partner. It can be as easy as a click of a button. It is important that once you’ve noticed there has been tax collected and not remitted you create and execute a well-thought-out plan. This may involve consulting with a professional or reaching out to the state directly.
There are a few options that are available to you depending on how long the tax has not been remitted. For example, tax amnesties, managed audits, voluntary disclosure agreements (VDAs), and historical and/or amended registrations are some of the options available. A VDA is when you contact the state and let them know this is happening, perhaps you just realized your mistake and you would like to be truthful about it. The tax is still owed to the state, but a VDA can generally significantly help reduce the penalty and interest that is followed by not remitting sales tax. Depending on your specific facts and circumstances and the state in question a VDA may be your best option or not available at all. Each state has its own rules for when a VDA can be used. Amnesty programs, while few and far between, can be a great tool when offered by the state. Amnesties are generally more generous when it comes to penalty and interest waivers but there is generally not a limited look-back period as there is in a VDA, Be mindful of amnesties because they are generally not true amnesties. Delinquent taxes will generally still need to be paid and in some instances, some potential penalties and interest may still need to be paid. Read more about VDAs and amnesties here.
How do you find a reliable sales tax partner?
Not all providers are equal so finding a reliable sales tax partner is critical for avoiding mistakes like this one. The first step in finding a partner is asking yourself a few questions to better understand where you want to be in the sales tax process.
Important questions to ask yourself can include:
How much time do you have or want to devote?
How involved do you want to be?
Do you care if your data leaves the country?
Do you care if your provider is preparing the returns or “brokering” the returns?
Next, think about a few questions in regard to the provider.
These could be:
What method does the provider use to balance?
Can the provider file all the returns you need”
Who is your point of contact?
What is the problem resolution process?
What exactly is the notice management process?
Who confirms all sales tax collected is remitted?
What reports are available?
What is the problem resolution process?
Who tracks online messages from the state?
Navigating the intricacies of sales tax can be complex and mistakes can be costly. There is a lot to know and having a rock-solid sales tax strategy in conjunction with a rock-solid sales tax partner can make a huge difference. Below find the resources we have available to help you navigate.
By: Jayci Trujillo
This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.