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What is a Zero Liability Tax Return?

  • Jul 22, 2016 | Suzanne Kearns

Do you have seasonal sales, or consistently go months without a sale? If so, it’s easy to assume that you won’t have to file your sales tax return for those periods, but that would be a mistake.

In fact, all sellers are required to file returns every time they’re due -- even if you have no sales to report. It’s called a zero liability tax return, and here’s what you need to know about it.

What is a Zero Liability Tax Return?

When you don’t owe taxes to the federal government at tax time, you still have to file a return. The same is true for sellers when it comes time to file sale tax returns to states, even if there are no sales to report.

For most states, you should use the same form that you use when reporting sales, but on the lines where you would typically fill in sales totals, you should enter zero.

Why States Require Zero Liability Tax Returns

You might think the requirement to file even when you don’t owe taxes is a waste of time, but the truth is, states need to keep up with businesses that are registered with them, and zero liability returns are one way to do that. For example, states want to know when a business no longer exists so they can close the account, but when they receive zero liability returns, they understand that the business is still operating, even though no sales were made. This also protects you from states inadvertently deleting your account.

Do Sellers Have Options?

If you don’t do any business for a number of months out of the year, you do have options. For starters, you can speak to the department of revenue offices in the states you have nexus in and ask them to allow you report less frequently. For instance, if you’re currently required to report every month, ask for a quarterly, or even yearly reporting schedule. In addition, some states allow you to file sales tax returns early if you know there won’t be any sales during the period. This can come in handy for seasonal businesses that are closed for several months out of every year.

Keep in mind that every state has different rules and procedures for filing zero liability tax returns, and you’ll need to understand the rules for every state you’re registered in. You can use this IRS list to find the department of revenue offices in each state.

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
Suzanne Kearns
Avalara Author Suzanne Kearns