Texas sales tax penalty notification
by October 21, 2023
Please note: This blog was originally published in 2019. It’s since been updated for accuracy and comprehensiveness.
Several online sellers have reported receiving a penalty letter from the state of Texas. The letter states that the seller is behind on sales tax and owes sales tax due plus a penalty. In each case, the state has asserted that the seller owes $1,000 in sales tax plus a $50 penalty for each filing period in which sales tax wasn’t filed.
Did you receive the same notification? Here’s what is happening:
The story behind the Texas overdue sales tax notification
In at least two cases we were able to follow up with the seller and confirm that the seller had recently registered for a Texas sales tax permit. When they registered, they indicated on the Texas sales tax permit application that their “date of first nexus” occurred earlier in the year.
It appears that registering after the date of first nexus automatically triggers a notice telling the seller that she owes an estimated total $1,000 in sales tax plus a $50 penalty for each quarter in which she didn’t file a sales tax return.
The $1,000 amount appears to be entirely arbitrary. In both of the two resolved cases, we were able to help the seller see how much sales tax he or she should have collected by using TaxJar’s “Expected Sales Tax Due Report.” Both owed less than $1,000 in Texas sales tax.
Then, in each case, the seller was able to file the correct sales tax return and did not have to pay the arbitrarily assigned $1,000. But, at least one of the seller was on the hook for the $50 penalties.
What to do if you receive this notice
If you receive a notice from the state of Texas in the mail, do this:
Figure out how much sales tax you should have collected
You can take a stab at this by pulling your financial reports, or just use TaxJar. TaxJar’s “expected sales tax due report” makes it simple to determine how much sales tax you should have collected from all buyers in a state. Just sign up at www.taxjar.com and link all of your eCommerce shopping carts and marketplaces. Give TaxJar a short time to import your transaction information. Then scroll down to Texas on your TaxJar dashboard and we’ll show you what you should have collected in Texas sales tax. You can also see a more detailed view by clicking on the state report on your dashboard.
(Keep in mind that TaxJar’s free trial only pulls in your sales information for the last 60 days, so if Texas is trying to penalize you for a longer period if time you may want to upgrade to a TaxJar subscription. When you do this, you’ll see all of your Texas transaction information back to the start of 2016. We can also pull in more historical information if Texas is asking you to go back even farther.)
Contact the state
We recommend giving the state a call. (Here’s a handy list of the fasted way to talk to a real human about sales tax in each state.)
From there, let the state know you received the message and would like to square up. If other cases like this are our guide, the state will ask you to file the missing sales tax returns.
You can also use your TaxJar account to do this. Just click the Texas state report on your TaxJar dashboard. Then use the numbers from the “Expected Sales Tax Due” tab to fill out your past due Texas sales tax return(s). From there, you should be squared away with the state of Texas, though you may still find that they charge you penalties.
Why did this happen?
While we’ve only seen a few cases like this, each seller who received this notification signed up for a Texas sales tax permit and indicated that their “date of first nexus” was a date in the past. This appears to have automatically triggered a notification.
What can you do to prevent this?
Each seller followed the letter of the law. But we do have some recommendations for sellers looking to avoid penalties:
- File a Voluntary Disclosure Agreement (VDA) -This works best for retailers who owe a large amount in uncollected sales tax.When you file a VDA, you work with a sales tax CPA who will negotiate wit the state for you. They’ll attempt to negotiate away some fines and penalties in exchange for you making a payment to “settle up.” It’s understood that you will then comply with collecting and filing Texas sales tax.
- Enter an alternate Texas start date – This approach is for the risk-takers out there. When you register for your sales tax permit, you can simply enter that your nexus started today (even if that isn’t technically true.) But that runs the risk of the state finding out that you were non-compliant and didn’t exactly come clean. That said, one way to cover your tracks is to determine how much Texas sales tax you should have collected when you were in non-compliance and remit that with your first payment. In that case, even if you get audited in the future, you did your part and paid the money you were supposed to collect. After all, the state is ultimately in it for the money!
Please note: This blog is for informational purposes only. Be advised that sales tax rules and laws are subject to change at any time. For specific sales tax advice regarding your business, contact a tax advisor.
