Pitfalls of Sales Tax Compliance: Returns

When most people think of tax returns, April and the IRS’s Form 1040 probably come to mind. But for growing businesses, especially those selling across state lines; there’s another kind of return that demands attention: state sales tax returns.

Sales tax compliance involves more than just collecting tax from customers. It requires accurate reporting, timely filing, and remitting to each taxing jurisdiction. That’s where things get complicated and risky.

What Are Sales Tax Returns?

Sales tax returns are how you report and remit the tax you collect from customers to the appropriate state or local jurisdiction. In other words, this is how the tax money you collect gets where it needs to go.

Sounds simple, right? Not quite.

• There are 50 different states, with 50 different systems, formats, and rules.
• Some states want just one number reported at the state level.
• Others require detailed reporting by city, county, or district.
• One return might take 10 minutes to complete; another could take 3 days.

There’s no federal sales tax, so every state sets its own rules—and those rules are often inconsistent, confusing, and time-consuming.

Due Dates Vary (and So Do the Penalties)

One of the most common sales tax return mistakes? Missing a filing deadline.

Returns can be due:

• Monthly
• Quarterly
• Annually

Most states require filing by the 20th of the month, but not all. Some states move the deadline up to the 15th. Even trickier: payment method can affect your actual due date. In Florida and Texas, for example, if you pay by ACH debit, you must initiate payment the day before the due date.

Failing to file on time can result in:

• Late fees
• Interest charges
• Penalty assessments

That’s why your tax calendar isn’t just helpful; it’s essential.

E-Filing and Portal Pitfalls

Many states now require e-filing, and tax departments are tightening security. That adds friction, and potential delays if you’re not prepared.

Key issues to watch for:

• Two-factor authentication (2FA): Who’s receiving the verification code? Is that employee available? Do they still work for you?
• Portal communications: Don’t just log in to file. Check for messages, audit notices, or enforcement letters. If a jurisdiction posts a notice to your portal (but never mails it), you’re still liable for whatever it says.
• Automated filings aren’t foolproof: If you're using a third-party service or auto-file solution, make sure someone is still checking your portal for messages. Most automated systems don’t monitor correspondence.

Returns Aren’t Just About Sales Tax

Some states combine sales tax with other taxes in one return.

Example: In Washington, you must file a Combined Excise Tax Return. That includes:

• Sales tax
• Business and Occupation (B&O) tax
• Other excise or industry-specific taxes

Here’s the problem: Your billing system likely won’t give you everything you need. The B&O tax is based on gross receipts, not just taxable sales, so if you’re only pulling data from your invoicing platform, you’re missing a big piece of the puzzle.

Bottom Line: Returns Are a Risk Factor

Sales tax compliance isn’t just about collecting the right tax. It’s also about filing correctly, on time, and with the right data. Errors in returns are a common cause of:

• Audits
• Penalties
• Unintended nexus expansion

Don’t Let Returns Derail Your Compliance

Everyone says they “simplify sales tax”, but when it comes to returns, you’re often left holding the bag.

At TaxConnex, we don’t leave you guessing. We manage the entire compliance process, including returns with expert oversight and full transparency.

Want to learn more?
Watch our our webinar “Don’t Test Your Luck: The Pitfalls of Sales Tax Compliance"

Need help now?
Contact us to learn what it means when sales tax is all on us.