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6 Steps for Dealing with a Late Sales Tax Return

  • Jan 15, 2016 | Laura McCamy

Pop quiz: Your sales taxes were due last week and you didn’t file them. What do you do?

  1. Drive to your state’s revenue department and personally deliver your return along with a plate of homemade brownies?
  2. Get in bed and pull the covers over your head?
  3. Deal with the situation calmly and methodically.

If you picked #3, you are going to be just fine. You aren’t the first person who didn’t file your sales taxes on time and you won’t be the last. Whether you simply missed a deadline or you don’t have the cash on hand to pay what you owe, you can get back into sales tax compliance by facing the problem head on and taking a few simple steps.

1. Pay up

If you got busy and forgot to file, do file and pay your sales taxes as soon as you can. Some states assess interest and penalties within a few days of late filing, so the quicker you can rectify your mistake the better.

In Connecticut, for example, the late payment penalty is 2 percent if you are less than 5 days late and goes up to 10 percent if your payment is more than 15 days late.

2. File your late sales tax return

Even if you don’t have the money to pay all (or any) of the sales taxes you owe, go ahead and file your return. You will still owe interest on the outstanding amount, but filing may reduce your penalties. Check the sales tax rules for your state to find out the effect of filing a sales tax return without payment.

3. Pay what you can

If you can make a partial payment, it shows you are serious about paying your sales taxes. There can be a financial benefit, too: In Pennsylvania, the penalty on underpayment of sales tax is lower than the penalty for not paying at all.

4. Pick up the phone

If you can’t find an answer online, call the customer service line for help. Like those hardworking souls at the IRS (yes, the IRS), employees at state revenue departments can be quite friendly and helpful, even if you’re calling to talk to them about how you messed up.

If you don’t have the money to pay, a personal conversation with the taxation department in your state may reveal payment options that the state doesn’t want to advertise on its website but that a representative can share with you.

5. Pay on an installment plan

The bottom line is your state wants your money. If you can’t pay it all right now, contact your state taxation department and ask for a payment plan to get you back into sales tax compliance.

In New York, you can qualify for an installment agreement if you have a past history of paying your taxes and meet a couple of other criteria. You can even request a payment plan online.

6. Plan for the future

Filing your sales tax return late or coming up short on the amount you owe may be a wake-up call that it’s time to make some changes in the way you handle your business finances. You might want to get help from tax compliance software to keep you on the straight and narrow.

One best practice: Create a separate account for the sales taxes you collect, and pay what you owe out of that account so you are clear at all times on how much you owe in sales taxes and have the funds handy.

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 Author
Laura McCamy
Avalara Author Laura McCamy