Photo of restaurant owners talking about what to do with past due sales tax

It’s no surprise that many restaurants and retail businesses find it challenging to stay on top of their sales tax. In addition to everything else that’s going on in this busy industry, you are expected to accurately calculate and collect sales tax from each transaction, hold on to those funds for the state until your taxes are due and then pay and file multiple times a year. Time flies…and just like that, another sales tax filing period has come and gone.

Unfortunately, it’s pretty easy to fall behind on your sales tax, and it happens to more businesses than you might think. In fact, our records show that about 60% of merchants were behind when they started using DAVO Sales Tax to automate their sales tax. You are not alone, and there are steps you can take to get back on track and out of debt to the State. 

What to do if you are behind on your sales tax:

1. Don’t fall further behind. Put a sales tax plan in place today.

Yes, you need to address the backed sales tax that you owe, but it will feel like you are filling a bucket with a hole in it if you don’t ensure that all current sales tax is being accounted for and paid. Put a plan in place right now to set sales tax funds aside daily, and file and pay your current sales tax. DAVO Sales Tax connects with your POS to do all of this for you, from start to finish. All you have to do is spend a few minutes setting it up and then you can rest easy knowing that your sales tax is completely taken care of and off your plate.

2. File all past due returns so you know what you owe.

Now that you have a plan in place to manage your sales tax moving forward, find out exactly where you stand with your backed taxes. You can file all of your backed returns without paying and find out how much you owe. Although doing this might make you cringe, it is a first step in showing good faith with the State revenue department.

3. Show good faith by showing that you have a plan, and are trying to pay.

The State revenue department wants to see that you are taking action to catch up, and to pay on time moving forward. Start to pay back what you can, even if it’s not much. Show that you have a plan in place, whether it is DAVO or your own manual sales tax management. We have heard from some sources that tax officials like to see that a merchant is using DAVO because automation ensures that sales tax will be paid accurately and on time. There is just less room for human error and they recognize that. Whatever you decide to do, you want to put yourself in a better position to negotiate with the State about your situation.

4. Determine a repayment plan.

Next you will want to research your options for repayment. Many POS systems offer loans that can be repaid directly from a percentage of your sales so you pay more when sales are good, and pay less when sales are slow. A personal loan is another option that you may consider. The State will also work with you on a payment plan. This is where showing good faith comes in handy. If you need to finance your repayment, you may want to consult an accountant to help you decide which route to take.

The long term risks of not paying sales tax

What happens if you don’t pay your sales tax? The long term risks add up. For one, the penalty and interest that is charged on non-paid balances can be between 5%-50% of the balance due. If you fall too far behind, the State may decide to place a lien on your business and personal record. If this happens, getting a loan, should you need one, will be very difficult.

If you close your business, your sales tax debt doesn’t go away.

Sales tax is a personal liability. If you close your business, you are still personally liable and sales tax liability does not disappear with bankruptcy. In other words, there is no way to escape sales tax debt.

Sales tax liability is serious, which is why it’s best to tackle your backed sales tax head on. And remember, you are not alone. So many merchants have this problem and they have found their way out of trouble by taking steps like those shared here. DAVO Sales Tax can help you get back on track to start, and keep you out of trouble moving forward. If you are falling behind on your sales tax, or feel like you are close to being late a bit too often, consider trying DAVO. You will never have to worry about sales tax again and the first month is free to try. If you have any other questions about your sales tax, you can always reach out to our experienced and helpful Customer Success Team.