If you refer to “filing taxes” most people think of income tax with its annual filing requirement. State sales tax is another beast altogether, with a dizzying number of deadlines – and, potentially, serious consequences for missing one.
Our third annual survey of financial professionals across various industries showed that many face sales tax challenges related to these filing deadlines.
More than half (58%) of companies responding to our survey use internal resources and existing accounting systems to prepare and file sales tax returns. More than two out of three (68%) use these same resources to remit payments to tax jurisdictions.
As states’ deadlines are numerous and widely varied, the above tasks are only going to get harder for many companies as 38% of respondents already sell into more than 30 states. Most companies (68%) also plan to hire employees, add customers or otherwise increase the number of states where they’ll need to collect and remit sales tax over the coming year.
The states’ call
Why no uniformity in sales tax requirements?
Since there is no federal sale tax (nor is one likely soon), sales tax is left up to states. And in some situations, left to even smaller, more-local jurisdictions – creating a seemingly endless hodge-podge of deadlines and penalties for missing them.
This wasn’t a significant problem for as many companies before the the 2018 Supreme Court Wayfair decision that opened the door to widespread state-level economic nexus thresholds. Currently, sales tax in the U.S., unlike other types of taxes, has many deadlines, often every month – but not on the same day for every business or state. There are often six primary deadlines each month – 7th, 10th, 15th, 20th, 25th and 30th – without considering the odd due dates for certain states, such as the 12th, 23rd, 24th and on and on. Returns are typically due monthly, quarterly or annually and usually set when you register but may change periodically. (Changes in deadlines are usually sent as notices.)
Some states have more unusual frequencies, including semi-annual and bimonthly. Holidays (federal and state), weekends and weather-related filing postponements can also alter due dates, just like they do income tax filing deadlines.
- Depending on the tax jurisdiction and the amount of tax reported, you may need to file only annually, or you may have to start filing the minute you register depending on the state or your estimated sales, or both.
- Regarding estimated sales, you may have to make prepayments and early payments based on those figures and whether your sales exceed a certain threshold in a certain state (California, to name one).
- Different states may have different filing requirements for in-state and out-of-state sellers.
- And in some states, you don’t have to owe tax to incur a filing requirement (aka a “zero-due” return).
How to handle this
You need an accurate tax calendar telling you where you’re registered for sales tax purposes, the filing frequency of each return, the due date, login credentials, method of filing (e-file or paper) and any other information specific to the jurisdictions where you have nexus.
A sales tax manager must file all returns by the correct due date and in the correct format, as well as ensure timely payment. Failure to keep up with changing tax calendars and notices from tax jurisdictions can result in penalties and fines – or worse.
Some businesses rely on software and “auto file” solutions to manage this complexity. However, keep in mind that these software providers are not proactively managing your notices and updating your tax calendar as necessary. Many businesses find themselves having to reach out to their software provider when notices arrive for changes to deadlines so that their systems can be updated to file correctly. Note that if you fail to tell your software company that your filing frequency has changed and they file the returns late, that’s on you.
Everyone who says they’re simplifying sales tax is leaving the hardest parts – and the liability – up to you. Contact TaxConnex to learn what it means when sales tax is all on us.