What happens if a business doesn’t file sales tax returns?

by Guest Author December 5, 2023

Please note: This blog was originally published in 2014. It’s since been updated for accuracy and comprehensiveness.

Small business owners are a naturally fearless group. But one thing they fear? Notices from the taxman. E-commerce sellers especially dread anything from state taxing authorities, which can often mean invasive questions or worse – a through sales tax audit.

This guest post from Florida attorney Jerry Donnini sheds some light on these fears and how you can sleep soundly at night, knowing the state taxing authority won’t be knocking on your door:

Most small businesses are aware that it is a crime to collect tax and not remit it back to the state, but most are unaware of the consequences if a company fails to file its periodic sales tax returns.

What happens if a small business fails to file a sales tax return?

Consequence:  An audit

In a state’s eyes, sales tax returns show them that you are still in business and that you do or don’t owe them any sales tax. If your company is in the type of business that sells taxable products or services then not filing a sales tax return may raise a flag to the state that you are doing something incorrectly or even illegally. Some state taxing authorities can levy huge fines or worse. It is a simple issue to eliminate by just filing your periodic sales tax returns.

Consequence:  Criminal implications

Even more serious than the threat for audit, is the threat for criminal implications for sales tax issues.  Seriously?  Jail time for failing to file sales tax returns?  That’s correct because most states impose a criminal penalty for business owners who knowingly fail to file sales tax returns.  For example, my home state of Florida has a misdemeanor criminal charge for business owners who “knowingly” fail to file sales tax returns.  Further, states, such as Florida regularly enforce this law.  Every couple of weeks the Florida Department of Revenue boasts about business owners who were recently put behind bars for failing to pay and file sales tax returns.  This past June, our friends at the Florida DOR reported a Longwood car dealer was thrown in jail for collecting and not remitting tax and not filing his business’s returns.  Almost every state with a sales tax has similar criminal provisions!

The benefits of filing sales tax returns

We’ve talked about why you should always file your sales tax returns, but one benefit of this is often over-looked.  Typically a state has a specific period (usually 3-5 years) from the date the return is filed to audit a company or assess tax.  This concept is known as the statute of limitations.  But, if a business fails to file a sales tax return then the state can go back to the inception of business in many cases and assess tax for ancient periods. This, of course, can be a disaster for many businesses.  Therefore, from a pure risk management perspective, filing your sales tax return can be a very wise move.

It’s just good practice to file your sales tax returns.  Filing your periodic returns keeps the state happy, and it will help protect your business from the prying eyes of state taxing authorities.  Whether it’s to reduce your company’s risk for audit, eliminate criminal implications, avoid civil penalties, or just to start the running of the statute of limitations, your company should be filing its returns.  If you believe your company is immune from filing returns (sells a product or service that isn’t taxable), then it is likely a wise move to seek a private letter ruling from the state.  Of course, if you are ever in doubt then contact your tax professional.

The basics of US sales tax

Learn the fundamentals of sales tax.

Watch the video