When filing and paying sales and use tax returns in multiple jurisdictions, compliance is easy right? You just collect the tax from your customers and remit it to the jurisdictions and it doesn't cost a thing. Wrong! There are many factors that go into managing all the moving parts of the compliance process. When these factors are not considered or completed timely and accurately, it could cost a business hefty penalties and/or interest, as well as your reputation as a taxpayer.
This first blog in a series, will address two of these factors and a subsequent blog will address three additional factors.
Each state or jurisdiction has a due date for their returns. Seems simple enough, but these due dates can vary and have different rules. While two jurisdictions could both have a due date of the 20th, compliance for each jurisdiction may be different. For example one jurisdiction may accept the postmark as timely filing and payment, while the other requires the return and payment to actually be received by the 20th, meaning you have to allow enough time for the payment to get to their office. The same jurisdiction could have multiple due dates…one for accelerated filers, one for paper returns and checks and one for electronic filing and payment of the return. Not filing and paying your returns on time may result in multiple penalties and interest. It will also give you a bad reputation as a taxpayer if you establish a history of not filing and paying your returns on time.
Many States require you to file or pay electronically. In some jurisdictions this is mandatory for all filers unless you have a specific exemption. In other jurisdictions, efiling can be voluntary and yet other jurisdictions mandatory for certain filers that meet a specific threshold or have a particular filing frequency. It is really important to know and understand these requirements for each jurisdiction because some jurisdictions will not send a notification and require you to monitor your thresholds and filing frequencies. My advice would be to proactively set up electronic filing and payments wherever you can. This could save you a lot of money in penalties and interest, as well as having to deal with fewer notices from the jurisdictions.
Stay tuned for three additional sales tax compliance factors that can cost you big.
Being compliant with your sales and use taxes is a must and can be very costly if not done timely and accurately. If you know that you do not have the expertise, then look at the alternative of outsourcing this function.