Article written by:
Anthony Ott, CPA
Director, State & Local Tax Services
The short answer is yes. What a crazy week it has been, resulting in more questions than answers while we patiently wait for state and local tax authorities to make decisions related to delayed payments or penalty relief. We have received many questions on whether a company should remit its sales tax payments by the normal deadlines.
As of today, we are only aware of a few states that have pushed back payment dates or are allowing relief from penalties. We understand conditions are drastically different than a week ago and cash preservation is paramount. Sales tax is a “trust tax” that is collected by the company on behalf of the state. Should that tax not be remitted, the states consider it theft. Significant penalties, and more importantly, officer/owner personal liability, are routinely enforced for non-remittance. This is especially the case with retail businesses that receive the cash for the sales tax at the point of sale.
While we do believe that the states will have some leniency as it relates to the timing of payments, penalty and interest, without specific guidance from taxing authorities or state legislatures allowing it, we cannot recommend retaining sales tax (or any other trust tax) as a cash management strategy. The states have been very aggressive in the past on personal liability for trust taxes.
Also, for these tax types, states do not grant individual company extensions. If they provide a grace period for payment of tax or a waiver of interest/penalty, it will be on an overall basis for all taxpayers, so there is really no benefit to calling the states and requesting a waiver/extension.
One specific consideration is accelerated payments. Certain states require an accelerated up-front payment to be a percentage of the actual tax liability for a given month to avoid penalties. Various methodologies are utilized to comply with accelerated payments, including calculating payment as a percentage of the tax amount from the same month in the prior year. We recommend revisiting the accelerated payment methodology and making an accelerated payment commensurate with the actual, (most likely) reduced tax that would be due for March.
The GBQ SALT group is monitoring the state and local tax response to COVID-19 but, as you know, it is changing rapidly. We will communicate updates as they occur. At this time, GBQ recommends sales tax collected should be remitted to the proper taxing jurisdiction under normal filing frequency. We do not recommend holding sales tax or utilizing the tax dollars for other operational purposes. To discuss this topic in more detail, please contact us.