You can get paid for filing sales tax on time? Wacky Tax Wednesday
I was stunned when I first learned that some states reward businesses for filing and remitting sales tax on time. As a former teacher, I immediately drew a parallel: What if teachers rewarded students for turning their homework in on time rather than penalizing them for handing it in late? It’s unthinkable.
While all states follow the education model and penalize late sales tax returns and remittances, fewer than 25 states compensate vendors for the timely filing and payment of sales tax, and only two encourage early filing by providing additional incentives.
In some of these states, calculating the allowed compensation is simple: For example, you’re allowed to keep 2 percent of the tax remitted in Missouri, and 0.75 percent of the amount remitted in Ohio. Easy peasy, even for mathematically challenged folk such as myself (I did not teach math).
It can be more complicated. Nebraska, New York, and North Dakota are among the states that cap their timely filing discount, so you have to keep an eye on how much you claim. Georgia and Kentucky are two of the states that reduce the discount after a certain threshold of tax is remitted: For example, Georgia provides a discount of 3 percent of the first $3,000 in sales tax remitted, and 0.5 percent on the remainder.
In South Carolina, vendor discounts depend not only on the amount of tax due, but also on how the tax is filed: The maximum discount for electronic filers is greater than the maximum discount for paper filers, and out-of-state sellers that voluntarily collect South Carolina sales tax are allowed to retain more than triple what in-state sellers can keep.
The vendor compensation rate in Louisiana is 0.935 percent, but it no longer applies to the full rate of state sales tax (4.45 percent since July 1, 2018). To calculate the actual allowable discount, you take 0.935 percent of just 4 percent of the state sales tax rate and leave the extra 45 cents untouched. When I reached out to the Department of Revenue for clarification (remember how I feel about numbers), it recommended multiplying the full amount of tax due by 0.84 percent, “the mathematical equivalent of 4 cents out of 4.45 cents … of the 0.935 percent vendor’s compensation.” If they say so.
Like Louisiana, vendors in Michigan calculate the discount using only a portion of the tax due: 0.5 percent of the first 4 percent of the tax remitted — unless you pay by the 12th of the month, in which case you can claim 0.75 percent of the first 4 percent of the tax remitted. Or, as the Michigan Department of Treasury explains, “Discounts apply only to 2/3 (0.6667) of the sales and/or use tax collected at the 6 percent tax rate.” There are two different caps: $15,000 per month if you pay by the 20th and $20,000 per month if you pay by the 12th.
Think of it, you can save your business $15,000 a month simply by paying your sales tax on time in Michigan, and save an extra $5,000 if you remit sales tax eight days early. And Michigan is only one of more than 25 states that provide this perk. For the growing number of businesses required to collect and remit in multiple states, such discounts could lead to substantial savings.
Need a little extra help getting your taxes in on time? Avalara can help.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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