Sales Tax Amnesty Programs

Sales and use tax is complicated, and sometimes retailers are unaware that they have sales tax liability in a state. However, failing to comply—by collecting and remitting sales tax—can lead to substantial interest and penalties. 

Some states understand this. They occasionally offer state tax amnesty programs to retailers unaware of their tax obligations.

This article will explain what you need to know about sales tax amnesty programs.

What Is Sales Tax Amnesty?

From time to time, state departments (or sometimes a local government) will announce a sales tax amnesty. Though the rules of amnesties vary, for the most part, this means that a state’s Department of Revenue (DOR) or Department of Taxation will allow someone who is not compliant to get compliant without some or all the penalties and interest that would typically go along with coming clean to the state.

Not all states offer sales tax amnesty, and for those that do, they often limit amnesty to specific periods or specific taxpayers.

Why Do States Offer Sales Tax Amnesty Periods?

States and local areas use sales tax revenue to pay for budget items like roads, schools, and hospitals. And every state has a tax gap—the gulf between the tax they are owed and the tax that is actually paid into the states.

States occasionally offer amnesty to businesses to incentivize them to file tax returns and comply with sales tax laws. For states, amnesty is a way to encourage delinquent taxpayers to come forward and start collecting and remitting sales tax from now on. This also saves them the trouble of performing sales tax audits and discovering delinquent taxpayers themselves. 

Though we can’t count on every state taxing authority to be kind and benevolent, most understand that having healthy businesses that haven’t been buried under huge fines and penalties is a good thing. And for that reason, they offer amnesty as a carrot to entice companies to comply.

Why Do Taxpayers Take Advantage of Sales Tax Amnesty?

For retailers, sales tax amnesty is an opportunity to become sales tax compliant with a state without paying the full amount you owe in penalties and interest. 

All too often, a merchant, such as an e-commerce seller, realizes that they have a sales tax nexus and thus an obligation to collect sales tax in a state but have not been doing so. When they calculate the amount of tax they would owe to that state, they realize that their tax bill would damage the business’s bottom line. 

Some retailers ignore the sales tax compliance problem and hope it goes away. Unfortunately, that old saying about death and taxes tends to come true, and states find the seller, perform an audit, and assess penalties and interest.

Sales Tax Amnesty Example

Jay owns a mid-sized e-commerce furniture store and missed the news about South Dakota v. Wayfair and economic nexus. Jay did not realize that even though all of his physical business activities are located in his home state of Pennsylvania, he now has nexus in ten other states because of the amount of sales he makes in those states. 

This means that Jay should have been collecting sales tax on buyer transactions in all of his new nexus states. Jay only discovers this when he receives the dreaded notice of an audit from the state of Louisiana. Unfortunately, being caught in an audit means it’s already too late for Jay to voluntarily comply with Louisiana sales tax laws. But because he now understands that he has sales tax nexus and an obligation to collect sales tax in other states, he can look around for compliance options.

One common option is to take advantage of a state’s voluntary disclosure program. In this case, Jay would hire a state and local tax expert (SaLT) to negotiate with the state. Under this option, the sales tax expert negotiates anonymously with the state to alleviate fines and penalties as long as Jay registers and becomes sales tax compliant. 

But if Jay is fortunate, he’ll discover that the Department of Revenue in one or more states he has been non-compliant in offers a sales tax amnesty. If this is the case, he can determine if his business qualifies, apply for the state’s amnesty program, and discharge some of the fines and penalties that otherwise could have threatened the health of his company. 

Sales tax amnesties, however, are few and far between. If you discover that you are non-compliant in a state with sales tax nexus, it’s best to speak with a sales tax expert about your options rather than hoping that a fortunately-timed sales tax amnesty appears on the horizon.

Sales Tax Amnesty Programs by State

There are currently a few active sales tax amnesty programs. The table below highlights the states that have or will have an active program in 2024.

Sales Tax Amnesty: Conclusion

Sales tax amnesty is rarely offered by states. However, if you have not been paying the taxes you owe, it can be worth applying for the sales tax amnesty program if it comes around in your state and you meet eligibility requirements.

The best way to ensure you are sales tax compliant is to track your nexus thresholds, remit your sales tax, and pay any interest due as advised. If you do business in several states, it can be worth investing in an automated sales tax solution like Zamp.

Want to Know How Zamp Can Help?

Zamp isn’t just another automated sales tax solution; we’re shaking up the industry by putting our customers first. We’ve been named a Major Player in the Small, Mid, and Enterprise SUT markets in IDC’s 2024 IDC MarketScape for Worldwide SaaS and Cloud-enabled Tax Automation Software, along with being featured in the top ten best sales tax software companies by taxtech500.

We help businesses outsource the entire sales tax lifecycle. Our platform offers:

• Hands-off onboarding: We set up everything for you and ensure it’s done right.
• Full sales tax compliance service: We offer nexus tracking, registrations, roof-top accurate calculations, product taxability research, mapping, reporting, and filing. All this is included in our pricing model — one fee for everything.
• Proactive account support: We are always looking for any changes in sales tax requirements, and our team is happy to answer any questions you may have.

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