Some states have postponed sales-tax filing and payment deadlines well into the weeks ahead, part of a COVID-19 relief effort for battered businesses. States and even localities have differed in how they are handling the deferments. Some deferments relate to filing and payment, some just payment, and some states are granting deferments only when requested.
The option to defer payment is seen as a gift to some. But it is important to remember that the money will still be due. If you use the money you owe for sales tax for day to day activities, it may not be around when payment is due.
Let’s discuss some of the factors to consider when deciding whether or not to defer your payments.
More time, less money
Yes, deferment means you have more time to pay the money you owe. However, this comes at a high price for tax jurisdictions, who are being hit hard by the lack of revenue. This could mean that once things go back to normal – or worse, before – states may need to increase enforcement of tax regulations and increase sales tax audits.
Who is responsible?
For now, states seem willing to work with taxpayers in need. But if you take advantage of sales tax deferment options, what happens if you are unable to pay later in the year? Responsible party laws mean you could be on the line for penalties and interest, not your business. Personal liability for sales tax can extend to owners, directors, shareholders, officers, and even employees.
Err on the side of paying
If you are a business with positive cash flow and have the cash reserves to pay the sales tax due in the future, you can take advantage of these deferments as an interest free loan. But, be wary and use other measures first such as stimulus payments and small-business loans before you go into funds that are technically owned by the government already. When you collect sales tax, you’re doing so as a fiduciary of the government. The money doesn’t belong to you, and they will come asking for it eventually.
At TaxConnex, our goal is to take sales tax off your plate. Now it is even more important to have a resource to help you understand your sales tax obligations. We aim to help not only our clients through this time, but you as well, even if it is only to serve as a resource to stay up to date with all the changes. Contact us to learn more about how TaxConnex can remove the burden of sales tax from your business.