Common Sales Tax Mistakes that Could Land an E-Commerce Company in Trouble With the Law:
Collecting and remitting sales taxes is becoming more complicated than ever. Here are a few common snags that can land an e-commerce company in hot water:
1. Collecting sales tax from customers and not remitting it: This is similar to not paying your employee payroll taxes and it is considered a crime. If a company is collecting sales tax but not remitting it on time, or simply not remitting it at all, the state looks at this as theft. This is a criminal offense and could land the responsible party behind bars
2. Not collecting and remitting sales taxes in jurisdictions in which you have Nexus: Ignorance to the law is not an admissible excuse when faced with an audit. A failure to register and collect sales taxes is a crime that a responsible party could be held personally liable for. Even though you did not charge and collect sales tax, you are still treated as if you charged, collected and did not remit the sales tax to the state. This means a company could owe thousands in back-taxes to the taxing jurisdiction in which they failed to collect sales taxes. This is also a criminal offense which could land a company founder behind bars.
3. Neglecting changing laws: An e-commerce company often expands very quickly and their activities in other states triggers a legal requirement to charge sales tax, called nexus. Many times, they do not know they have this requirement until they are audited. States are very smart about finding delinquent companies, even if they have not registered to pay sales taxes in a state. There are over 11,000 taxing jurisdictions in the United States and there are thousands of changes to rates, filing dates and thresholds each year. Failure to properly monitor changing laws in all applicable taxing jurisdictions could result in an unintentional criminal offense which could get a company founder in a lot of trouble.
For e-commerce companies doing business in multiple taxing jurisdictions, it is crucial that they employ a company that helps them establish an automated sales tax system, like eTaxConnect. An automated system allows companies to accurately monitor their sales taxes in each taxing jurisdiction without the risky task of trying to make your company succeed while monitoring all sales taxes at all times