Sales Tax Strikeouts

A man with a baseball bat in hand slowly walks toward home plate. He hits the bat against his shoes and then gets into an athletic stance and raises the bat behind him. Before he knows it, there's a ball flying past him. He swings; he misses. He re-adjusts, and before he knows it, again… the ball flies by…. This time he got a chunk of it… but that's still two strikes! He gets ready again, and… the ball goes by. He's out. All of his hard work to get to this moment feels like it’s not worth anything.  

Do not let this be a story that relates to your sales tax experiences. 

Stretching the State’s Guidelines

You work hard to make your business grow. There are many instances in sales tax where we might misunderstand a guideline or rule...In sales tax, this can lead to issues. There are many nuances within the legalities of sales tax; in theory, this is not to hinder you, necessarily, but like most laws, to keep order and maintain integrity. 

Ensuring you are following the laws and guidelines set forth by a state can help to eliminate the risk of being non-compliant. We have an entire blog about the penalties at risk for noncompliance; you can read that here.

Horror Story Strikeouts

Learning the ins and outs of sales tax compliance is important. There are many stories of individuals “striking out” when it comes to their sales tax efforts. We have broken down some of the worst horror stories we have heard here. 

Story 1: Tax Collected and Not Remitted 

A software company’s salesperson told Company X that the streamlined sales tax program was the best option for their sales tax needs. The software company told Company X they would take on the responsibility of collecting and remitting their sales tax in over 40 states. 

Over the next four years, Company X accumulated $850,000 worth of tax collected and not remitted in Louisiana and Colorado alone. Company X was also responsible for additional penalties and interest for the tax collected and not remitted. While it was ultimately still their responsibility to catch the error that caused this, they were under the impression that the software company had their sales under control using the streamlined sales tax program. 

Story 2: Business and Occupation Tax 

This story begins again with an aggressive salesperson pushing the streamlined sales tax program. This time, Company Y got registered in forty states, and the salesperson told them they didn’t have to worry about anything. The problem, however, was that one of the states that Company Y got registered in was the state of Washington. In Washington, there is a business and occupation tax, which the streamlined sales tax program does not include on the sales tax form. (It is included on the non-streamlined sales tax form.) When the Streamlined program is used, a second form needs to be filed outside the program. In the fine print, the software company did address this, saying that you have to pay for the business and occupation tax separately when using the streamlined sales tax program. However, most people don’t read the fine print, and the salesperson who sold this program never mentioned any of this to Company Y. 

Three years later, Company Y got a call from the state of Washington. They owed the state $112,000 in tax, a 39% penalty, and interest. Thankfully, Company Y came to us, and the state of Washington said they would work with us. We worked to remove the penalty; however, the interest on top of the tax owed for the three years of non-filing was still required... This is not a single company issue. If you are using the streamlined sales tax program and sell in WA, this affects you as well. Business and occupation taxes are never paid as a part of the return under the streamlined sales tax program. Therefore, if you are using this program, you could owe taxes, penalties, and interest like company Y. 

Story 3: California filing requirements

In April of 2019, California changed the collection and filing requirements for companies that have more than $500,000 in sales. Now, these companies are required to file a Schedule A. At the time, Company Z was working with a software company to collect and remit their sales tax. When this change took effect, the software company did not correctly change how Company Z’s tax was being remitted in the state of California. As a result, Company Z owed the state of California $125,000 plus penalty and interest.

Errors, mistakes, or strikeouts in sales tax can be tough. We have a team of professionals who can help ensure you are on a successful path and help to eliminate these mistakes in the future. Reach out; we are happy to help at contact@salestaxandmore.com.

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.