Taxand USA provides an analysis after the recession that began in 2008 began to substantially impact many state budgets.
Companies strive to be good corporate citizens by paying all sales and use taxes that are legally due, but sometimes companies make mistakes. Taxing jurisdictions will obviously continue to find new revenue by conducting sales and use tax compliance audits, and companies do not want to be saddled with an unanticipated liability that may significantly impact their bottom line. In addition, failure to file and/or pay sales and use taxes can result in a company paying substantial penalties and interest on top of the unpaid tax — potentially anywhere from 5 to 50 percent of the tax amount owed to the taxing jurisdiction.
Many states continue to experience significant budget deficits, which will likely continue into the future. These deficits may be a result of reduced sales tax collections due to less corporate spending, reduced property tax collections on lower property tax values, and smaller-than-expected state income tax collections due to corporate losses and/or increased business incentives to entice corporation development and expansion. In addition to conducting compliance audits on companies, states continually look for ways to increase collections or possibly offer incentives to come forward for companies that have inadvertently underpaid their taxes.
There continue to be many options available to remedy the unpaid tax situation if companies find they have substantial unpaid sales and use taxes. Each of the options described below has its advantages and disadvantages, and so taxpayers have to make a business decision as to which option is best for them based on their facts and their appetite for risk.
Discover more: Options for remitting unpaid sales tax
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A company with unreported or underreported sales and use taxes has many options available. To determine which option is best, the company needs to determine its facts, quantify its liability and determine the period open for statute of limitations for each of its issues.
