Avalara > Blog > Sales and Use Tax > 5 Common Sales Tax Remittance and Filing Errors - Avalara

5 Common Sales Tax Remittance and Filing Errors

  • Jan 29, 2015 | Avalara

Sales tax filing and reporting rules vary between jurisdictions in material ways. Each state has unique filing schedules, forms, payment thresholds and other administrative requirements that can trip you up. Here are some common filing and registration errors and what you can do about them.

1. Not knowing nexus.

The connection between a company and a state, in which the company acts as an agent of the tax authority and collects and remits accordingly, is called “nexus.” In addition to a significant physical presence such as a warehouse or headquarters, nexus can also mean a virtual connection. Large online retailers such as Amazon and Overstock now collect sales tax in states in which they have neither distribution centers nor warehouses.

Whether a company has a sales tax obligation is the crux of the sales tax challenge. There are approximately 11,000 jurisdictions within the U.S. and 100,000+ rules changes annually; that’s a daunting set of variables few manual systems can handle.

2. Failure to register

Once a company determines where it has nexus, it is then required to file and remit sales tax accurately and on time to the applicable jurisdictions. Other than employment and income tax, the most common type of tax requirement is sales tax. If handled manually, companies are required to review individual tax authority sites to find the right registration procedures.

3. Wrong forms

Following the example of the IRS, many states are starting to require electronic filing and payment of tax. Knowing which states have which requirements changes almost daily. Depending on where a company is registered, where it has nexus, and the amount of the return, the company might be required to file electronically for all or just some of its returns..

4. Late filing

Not only is late filing an easy way to incur fines and late fees, the consistent late payment of sales tax obligations can be a red flag for over eager auditors grasping for more revenue on behalf of struggling states.

Depending on the amount of the remittance, states often require multiple filing dates. Some states also offer amnesty for overdue tax liabilities depending on the case. For a list of states with amnesty programs, follow this link.

5. Remittance errors

Return preparation is driven by data, great volumes of which can lead to inaccuracies and oversights, particularly if calculations are handled manually.

It’s critical to review prepayment requirements in all applicable jurisdictions. A number of jurisdictions require prepayment for larger tax amounts (including California, Mississippi, and North Carolina). Some prepayments involve a different filing schedule than regular returns, sometimes more than once a month. Be sure to track these schedules and mark your calendar appropriately!

The best way to avoid these common filing and remittance errors is to automate with a filing and returns management tool such as Avalara Returns. Learn more about automating returns.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in the U.K., Belgium, Brazil, and India.