People carrying stars - keep up with your sales tax during COVID-19 for success

By David Joseph and Karen Tenenbaum

In these unprecedented times of COVID-19, businesses large and small have been turned upside down. Paying taxes is likely one of the furthest things from the mind of most business owners, in spite of the fact that April 15th and April 20th tax deadlines are right around the corner.

Sure, the IRS has provided some tax relief allowing a 90-day deferral of tax payments by individual taxpayers up to $1,000,000 and corporate taxpayers up to $10,000,000. However, payroll taxes and state sales tax payments are still due at this time. As a result, businesses are facing a perfect storm of taxes in the coming months.

The focus at the moment for most business owners is on the welfare of their business, employees, and customers. News and regulations change hourly and it’s a lot to keep up with. We see retailers shutting their doors and boosting their online ad spend to drive customers while restaurants retool their kitchens to accommodate to-go and delivery orders only. Yet no matter how the sale is made, collecting sales tax is still part of the transaction and until further notice, sales tax will have to be filed and remitted to the state.

It’s understandably easy to push sales tax filings to the side in lieu of more pressing issues like keeping employees working and making payroll. When the dust settles, failure to manage sales tax will become a huge and potentially very costly headache. Most states impose penalties for missing a single sales tax filing deadline.

Even if you have closed your business and have no sales, you still have to file a $0 sales tax return or face a minimum penalty. Some states may ultimately decide to waive penalties and interest for late payments, but you shouldn’t bank on that. And even if that happens, simply going back to file sales tax returns for sales that happened months or even a year prior will take huge amounts of time and energy. It’s best to just stay on top of your state filings.

One of New York State’s leading tax attorneys, Karen Tenenbaum of Tenenbaum Law, says that “Restaurants in New York have been banned from dining in service and are now restricted to take out and delivery only. They will clearly experience financial hardship because of this. While the state may temporarily halt collection efforts, it is not clear how long it will last, and businesses will still need to file on time.”

With this in mind, you should take a proactive approach and follow these best practices in order to make sales tax less taxing:

  1. Do you or your third-party apps need to remit sales tax?: If you are a restaurant using third-party order apps such as Grubhub, UberEats, and Doordash, make sure you understand who is responsible for remitting sales tax in your state, you or the third-party app. Learn more about this by clicking HERE.
  2. File on time: File your sales tax return on time even if you closed your business and have no sales.
  3. Remit as much as you can: If you do not have the money to pay your taxes, try to remit as much sales tax as possible when you file your return.
  4. Find alternate working capital: Look for alternate forms of working capital so you don’t have to use sales tax funds to run your business. Bank lines of credit, SBA loans, credit cards or merchant cash advances are all far better options of working capital than using sales tax.
  5. Set up a repayment plan: Should you decide to use sales tax revenue as working capital, plan on setting up a repayment plan with the State as soon as possible. 
  6. Automate Your Sales Tax: Consider using a third-party application to automate your sales tax management. DAVO Sales Tax automatically sets your sales tax aside daily and then files and pays it for you, on-time and in-full.
  7. Look at your state website: Visit your state’s sales tax website to see if they are offering any new concessions due to the COVID-19 emergency. Links to these sites can be found by clicking HERE.

Finally, be sure to follow your state’s guidelines regarding your retail establishment during this emergency and stay safe!

Questions about a sales tax audit or collection issue? Email Karen at ktenenbaum@litaxattorney.com.

Questions about sales tax automation? Email David at david@davosalestax.com.

Disclaimer: The information contained in this article does not constitute tax advice and is for informational purposes only.

Karen Tenenbaum, Esq., LL.M. (Tax), CPA is Founder and Managing Partner of Tenenbaum Law, P.C. (www.litaxattorney.com), a tax law firm in Melville, N.Y., which focuses its practice on the resolution of IRS and New York State tax controversies. Karen can be reached at ktenenbaum@litaxattorney.com or 631-465-5000.

David Joseph is the co-founder of DAVO Technologies (davosalestax.com) and a former restaurant owner. DAVO Automated Sales Tax integrates with many popular POS systems to set aside sales tax daily and file and pay it when it’s due, on-time and in-full. Put your sales tax on autopilot and never worry about it again. David can be reached at david@davosalestax.com or (888) 659-8432.