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taxes

4 Steps to Resolving Sales Tax Notices Successfully

Do you stress when you receive a sales tax notice? The good news is that not all notices are bad news. When dealing with any agency notice there are generally 4 steps to follow to help ensure a positive resolution:

  1. Read and understand any notice to clarify action needed
  2. Account for informational changes on time
  3. Gather supporting documentation for non-informational notices
  4. Respond and follow-up in a timely manner


1. Read and understand the Notice to clarify action needed

Sales tax notices vary widely, regardless of what State’s agency is sending the notice. First and foremost, take time to read and understand the notice as soon as you receive it. That way you know the reason for the notice and any action you need to take.

Notice Categories – You may receive a sales tax notice for one of these three main reasons:

Informational

  • New form or form change
  • Rate change
  • Other – e.g., Alabama or Colorado’s expanded reporting related to the Wayfair ruling

New Requirements or Requirement Changes

  • When & How to File – e.g., filing frequency change from quarterly to monthly; rounding update, no longer report by whole dollar; or new mandated electronic file rules, etc.
  • When & How to Pay – e.g., need to make prepayments; or mandated electronic payments, etc.

Filing-related Issues

  • Return – incorrect, missing or late
  • Payment – incorrect, missing or late

Note: Lack of response for filing-related issues may lead to a warrant, demand, lien, so do not ignore them.

2. Account for informational changes on time

Sales tax notices that are purely informational often do not require any action on your part. Beware, that is not always the case! It all depends on the notice and the process you use to manage your sales and/or use tax responsibilities.

For example, if you manually maintain tax rates then an “Informational Notice” of a rate change may require that you manually update your rate table(s). Failure to make these updates will cause future reporting to be incorrect which could trigger another notice.

Fortunately, if you are utilizing QuickBooks Sales Tax, the functionality inside the sales tax system automatically accounts for these generic Informational changes related to rates, thereby reducing the administrative burden on merchants to track and account for these changes happening all the time throughout the U.S.

3. Gather supporting documentation for non-informational notices

When dealing with a notice regarding incorrect, missing, or late filings or payments, it is best practice to take time to gather your records for the specific tax period(s) at issue from your retained records ahead of time. That way when you contact the Agency that sent the notice, you have the relevant information you need to resolve the issue efficiently and effectively.

If you have your taxes processed by a third-party tax preparer/filer, like the QuickBooks Sales Tax team, you should alert that filer of the notice, within 3-business days of receipt. Once they have been informed the team can timely respond to the notice on your behalf and avoid further expenses or prevent additional notices from being issued.

4. Respond and follow-up in a timely manner

State and local sales tax agencies make mistakes too! If you get a notice stating a return or payment was wrong, missing, or late, then once you have gathered your retained documents supporting the relevant filing and payment, contact the agency as instructed in the notice to provide the proof needed to clear the matter.

If you have made a mistake, however, here are three further actions to help:

Request Penalty Waiver

If there was a mistake on your part, a tax jurisdiction will usually impose penalties and interest. If this happens, most agencies provide a process for waiving penalties, but the window for requesting a penalty waiver is usually limited.

This issue reinforces the need to follow Step 1, which is to read the notice as soon as it comes and understand any action needed. If you ignore a notice, another notice will issue usually with more money due, and if you continue to ignore, the agency might file a lien or shut down a physical business location.

At that point, the opportunity to request a penalty waiver may be long gone!

Option to Remove Interest

Typically a tax agency cannot remove interest charges but do not assume that is always the case. For example, if you filed under the wrong tax type (Sales v. Seller’s Use) an agency may move the filing to the correct ax Type and remove all penalties and interest assessed.

In this instance, update your systems and/or processes, including your filing requirements in QBO, if any, to make sure an incorrect filing does not happen again.

Calendar Follow-up

If you send the missing return or payment to the Agency, calendar a follow-up with them to make sure the account is fully clear and no additional expenses, liens or attachments apply.

Summary

As your business grows in the e-commerce market, QuickBooks Sales Tax is here to help you remain tax compliant. If you receive a Sales Tax Notice, follow the 4-STEPS to follow to help ensure a positive resolution: Read the notice, account for changes, gather documentation and respond quickly.


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