Over the past four years, the sales tax landscape in the United States has changed significantly. The introduction of economic nexus – a connection to a state based on sales revenue or transaction count – altered the requirements for companies to collect and remit sales tax. Gone are the days when you could sell your products or services outside of your physical boundaries without charging sales tax. Even though every state with sales tax has adopted some form of regulation, there are still those who beg the question – what happens if I don’t collect sales tax? Or, what if I collect but don’t remit the tax to the proper states?
This blog will highlight the implications of not complying with state sales tax rules along with real-life cases that have impacted businesses and their responsible parties.
1. You will have to pay the sales tax back with interest.
If you do not collect or remit sales tax and are audited, you will be required to pay back the uncollected or unremitted tax for the audit period with possible penalties and fines. The best-case scenario is to recognize the error before an audit and to voluntarily correct the mistake. A Voluntary Disclosure Agreement may help alleviate possible interest and penalties due. The worst-case scenario? It can financially ruin your business and responsible parties can face criminal charges.
Real life example:
2. Senior officers are held responsible for sales tax liabilities.
First and foremost, sales tax is a trustee tax. This means that the corporate shield will not protect against sales tax violations. Trustees vary from company to company. Examples include owners, CEOs, CFOs, or COOs.
Real life example:
3. My company is based outside of the United States – how can a state punish me for not collecting sales tax?
You can kiss that vacation to the U.S. goodbye! While it is much more difficult for international companies to get penalized while abroad, your plans for expansion in the United States or even a simple visit for pleasure can be deterred.
The moral of the story
A lot can happen if you don’t collect or remit sales tax. Understand your tax responsibilities by conducting regular Sales Tax Nexus Studies, weigh the consequences of non-compliance, and plan your next steps internally or with a trusted tax adviser.