If you are confused about your sales tax obligations, know that you are not alone. The Small Business Administration notes that questions about sales tax are some of the most frequent inquiries it receives from business owners throughout the country. These questions are reasonable because figuring out your business’ sales tax obligations is a complicated matter. Part of the reason for this complication is the fact that the rules can vary. The United States does not have a federal sales tax, but the majority of states as well as the District of Columbia have one in place, and each have their own nuances. Some communities even have an additional local sales tax.
Business owners need to be comfortable with these laws because, even though the sales tax obligations for a business will vary depending on the state and location, the law requires compliance. A failure to comply can result in allegations of wrongdoing and steep financial penalties.
How do these sale tax obligations work?
Although the sales tax is paid by the consumer who purchases the qualifying goods or services, the business owner is responsible for getting that sales tax to the taxing authority. This can include the state, county, or municipality taxing authority. The following is a basic outline of how the process generally works:
- Register. First you should register your business with the taxing agency.
- Collect. Once registered, begin collecting sales tax on qualifying purchases.
- Document. Keep clear records on tax collection.
- File. The state or other taxing authority will likely require filing a sales tax return.
- Remit the tax payment. The details vary, but this is the step when the business actually pays the taxing authority the tax owed.
It is important for the business owner to know what is owed. The Comptroller of Maryland, for example, notes that sales and use taxes in Maryland are set at 6% and go up to 9% for alcoholic beverages.
Not every transaction will result in a sales tax. There are some exemptions. Although the rules vary by state, some common examples include the sale of food and medications as well as the sale of products to charitable and educational organizations.
In many cases, a state sales tax is still applicable for purchases made online. This gets complicated, as the business owner may owe a sales tax in the state where their client lives — even if their business is not actually physically located in or actively doing business in that state.
This is just one of many complications that business owners must navigate when meeting their sales tax obligations. An attorney experienced in this area of the law can review your business practices and help you determine the best way to ensure compliance.
What if I have not paid our business’ sales tax?
Those who have accumulated years’ worth of unpaid sales tax are wise to consider proactive reporting options. A failure to report these tax obligations could result in serious problems in the event of a tax audit. If the state or local authority discovers the tax bill it could move forward with criminal penalties. States often view business owners who choose to partake in voluntary disclosure programs as acting in good faith — something that can work in your favor to help avoid additional penalties and criminal charges.