Reminder: Deferred Deadlines Looming for Sales Tax Filing

Weeks ago, state tax authorities lent a hand to companies ravaged by the pandemic and postponed sales-tax filing and payment deadlines. But that extra time is about to run out.

Just like the deadline (extended to July 15) to file individual income and other taxes with the federal government, sales tax filings for many states are due July 15. Note: Some states came due earlier.

Further delay of filing deadlines seems unlikely. Just this week, for instance, Michigan’s governor vetoed a bill that would have again extended the deadline for collection of the state’s sales and use taxes, claiming the measure would’ve only hurt government coffers more.

You may have looked on this time as an interest-free loan, letting you use the money from your deferred sales-tax payments to handle your mounting business bills during the pandemic, but that may not have been the best idea.

What Happens Now?

The extra time awarded to businesses came at a high price for tax jurisdictions, which weeks ago already started to feel the cash crunch of loss of sales and other taxes in the pandemic. Businesses forced to shut down by governments trying to deal with COVID-19 are the very businesses governments rely on for sales tax obligations.

The trend continues as the pandemic wallops a growing number of states. Ohio sales tax collections dipped 17.1% in the first full month of coronavirus-related business closings. Sales tax collections in Texas fell 6.5% in June, following a 13.2% drop in May representing the sharpest drop in 10 years.

State revenues are down $577 million in Iowa as tax revenues have dropped. May tax collections are down 14% from May of last year in Oklahoma. Even in states where online shopping has soared during the pandemic, like Wisconsin, tax revenues have still dropped.

What happens when things go back to normal – or, worse, before they go back to normal – and all the deadlines have passed?

The major issue with the option of deferring payments is that sales tax collected is not your money. In collecting sales tax, you are acting as a fiduciary of the state where your responsibility is to collect and remit the sales tax. The money is still due and could cause great risk to you or your business if you are unable to pay it back.

Yes, audit programs of states have slowed during the shutdown, but don’t expect that trend to continue. At some point, cash-starved states will need to increase enforcement and additional sales tax audits are likely. Be sure your company is prepared for a potential audit or has covered its bases in paying back sales tax collected during the pandemic.

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.