Zero-Due Returns: What They Are and When You Have to File Them

Suppose you’re registered for sales tax in a jurisdiction because you have established sales tax nexus. For various reasons though, you don’t have any sales tax to remit. You may think that because you haven’t collected any sales tax, you have no return to file.

Wrong. Most states in which you’re registered want to hear from you even if you don’t have any sales tax to remit.

Generally, you file returns reflecting no sales or tax collected – aka “zero-due” returns – by your due date even if you didn’t collect sales tax from your buyers. Some states even levy a penalty for failing to file a zero-due return.

(If you file a zero-due return over multiple filing periods, sometimes a jurisdiction will allow you to reduce the filing frequency from monthly to quarterly or even from quarterly to annually.)

Under what circumstances might you need to file a zero-due return? One common situation is when a business wants to present valid resale exemption certificates to their vendors but otherwise have no obligation to collect sales tax from their customers. Applying for a sales tax license will enable a business to provide a valid resale exemption certificate. But the registration process creates the requirement to adhere to the jurisdiction’s sales tax rules and collect and remit the applicable sales tax. If the business is selling to tax-exempt entities or other businesses that are buying for resale purposes, there will be zero tax due, but a return will still need to be filed.

Another situation is that you may have sporadic taxable sales in a jurisdiction but numerous tax-exempt sales.  In most states, the tax-exempt sales combined with the taxable sales will contribute to whether you have sales tax nexus or not.  Once nexus is established, you will need to collect sales tax on the taxable transactions.  If the taxable sales are sporadic, you may find yourself in a situation where you are filing zero due returns.

As an example, TaxConnex recently worked with a business whose customers were mostly government agencies, which are generally tax-exempt. Nevertheless, our client was required to be registered for sales tax purposes and report their gross and exempt sales. They were also required to collect sales tax from their few, taxable customers in multiple states. While many of the returns are zero-tax due, it is still a significant volume of returns and a distraction to their lean in-house accounting and tax team.

Where you must file

Once a company is registered with a state, failure to file a zero due return for sales tax can result in a penalty in some states. You must file zero due returns if your company is registered in the majority of states that have a statewide sales tax.  Just because no tax is due on certain returns , don’t let them fall through the cracks or let your team become overburdened by the amount of work to manage the paperwork. Sales tax compliance laws change constantly and keeping up with details such as zero-due returns can easily become an overwhelming chore.

At TaxConnex, our goal is to take sales tax off your plate but also to be a resource to you.  It’s critical to have a resource to help you understand your sales tax obligations. If you have a question, please reach out. Want to learn how to manage your filing process? You can click here for the 5 steps to a Complete Sales Tax Filing Process.