Collecting and remitting sales tax can be onerous – and expensive – for any business. That’s one reason some states give a collection discount to help with the costs of managing sales tax.
States offer it as a way of helping to pay administrative costs of compliance. And if it sounds like free money, it can be if your company knows how to take advantage of it in states where you have nexus.
This blog will evaluate some of the details surrounding these discounts, sometimes known as a vendor’s compensation or dealer’s discount. For some businesses, these discounts won’t seem like much, but for large businesses paying a great deal in sales tax every month, they could receive discounts that could more than pay for the services they utilize to remain compliant.
Lots of different discounts
Most taxing jurisdictions mandate on-time filing and full payment of tax due, among other conditions, to qualify for these discounts. Some states, such as Alabama, Mississippi and Wyoming, require filing by a certain day of the month.
Generally, the breaks are small percentages of the sales tax that you collected and remitted to the state, perhaps 1% (or even less). Some states, like Indiana and Wisconsin, vary the discount depending on the amount of tax collected and remitted.
Discounts can be capped in some states either monthly, quarterly or annually or they may offer extra discounts depending on the type of filing. South Carolina, for instance, gives a slightly better break for electronic filing rather than paper filings. Like most things in sales tax - it depends on the state whether these discounts are offered and how much they are worth.
You may not want to wait
For most states, discounts like this have been happening for many years, but there’s no promise they will continue forever. States hungry for revenue, during the pandemic, for instance, may remove their discounts, so take advantage now. (example: Utah recently nixed a big seller discount for non-nexus remote sellers who voluntarily collected and paid Utah sales tax.)
There are a lot of nuances to these discounts, but in many cases, it could be beneficial for your business to ensure you are getting them where it applies. Check with a state’s individual department of taxation if you have follow-up questions on their specific programs. Conditions can change frequently – as often happens in the world of sales tax.
If you think you're not getting all you can from your sales tax compliance efforts, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department.