PART 2: IF A TAXPAYER MEETS THE SALES THRESHOLD IN A STATE, WHAT MUST WE DO NOW?
These frequently asked questions build on our prior series of FAQs.
Q: Once a taxpayer meets the sales threshold of a state, what must be done to be compliant with the state’s tax laws?
A: You must register for sales and use taxes with the state. Depending on the state and jurisdiction, you may need to register with the local jurisdiction or parish. Please note some states may require you to register with the state’s Secretary of State before obtaining a sales tax permit from the state.
Q: How often will I need to file sales and use tax returns?
A: It will depend on each state. The state will assign you a filing frequency based on certain criteria it has established. The frequency will be either monthly, quarterly or yearly.
Q: What rate do I collect, just the state rate or do I include the local rates?
A: Generally, states require taxpayers subject to the economic nexus laws to collect all applicable taxes, which means all local taxes. Therefore, you would collect the state rate, plus the local rate where you are shipping the goods.
Q: If I have zero sales to that state for a given filing period, must I file a sales and use tax return for that period?
A: Yes. Once you’ve met the threshold and begin filing, you cannot stop. If your company had no sales in that jurisdiction during the period, you will file a “zero return.” If you do not file, you may receive a notice and possible penalties for not timely filing a return.
Q: If I no longer meet a state’s threshold, how long until I can stop filing?
A: Probably not. Generally, states require that, once you have met a threshold, you continue filing as long as you are in business.
Q: Once I meet a threshold, are my previous sales subject to tax?
A: No. The tax liability is based on future sales after the threshold has been met, not historical sales.
State and Local Tax Attorney Services
Freeman Law can help taxpayers navigate state tax laws. We will provide value-driven services and provide practical solutions to complex issues. Schedule a consultation or call (214) 984-3410 to discuss your local & state tax concerns and questions.