As a business owner, it is your responsibility to collect sales taxes from your customers and submit the money to the appropriate state(s) along with a sales tax return. To avoid audit problems and penalties, you need to make sure you file your return according to each state’s rules and filing schedule. While each state has a slightly different process, here are some general guidelines that can give you an idea of what to expect.
Every state has different rules for when and how often you need to file your sales tax returns. It is common to see an annual, quarterly, or monthly filing frequency. Generally, the more money your business collects in revenues, the more often you have to file a sales tax return.
For example, in New York there are three filing periods: annually, quarterly, and monthly. Businesses that owe less than $3,000 a year in sales taxes can file annually during the period of March 1st through February 28th, February 29th on leap years. Businesses that make less than $300,000 of sales that are subject to sales taxes need to file quarterly whereas a business that has more than $500,000 in annual sales taxable revenues needs to file monthly. Even if you don’t owe any sales taxes for a given period, you still need to file your return.
Most states allow business owners to submit their sales tax returns electronically. This is actually a requirement in many states to save time and money. There are a few exceptions when a business needs to file a paper return. For example, in California you can’t e-file if you are submitting an amended return, if your business is registered to a permanent location but you are making sales from another temporary location, or if you are reporting on a schedule other than Schedule A, B,C, E, or G. The vast majority of business owners will e-file though.
Late filing penalties
If you don’t file your sales tax return on time, you may owe extra money as a penalty. Some states don’t charge a penalty if you are late with your return, but you don’t owe any money in sales taxes. However, if you do owe taxes, the state will penalize your late return.
For example, if you are late with your sales tax return in North Carolina, the state will charge an extra 5% per month up to a maximum 25% as a failure to file penalty as well as another 10% as a failure to pay penalty. In addition, the state will charge interest on your unpaid balance.
Since each state has its own unique process, it is always a good idea to review your state’s sales tax filing process with a tax professional to make sure your business is in compliance. This way, you can avoid costly filing mistakes.