Why You Should Not Ignore Tax Notices
If you are registered for sales tax, you WILL receive sales tax notices. Sometimes these notices are for informational purposes, but most of the time, they are notifying you of an issue that needs to be resolved. Someone, either internally or externally, should be paying attention to the tax notices you receive and making sure any issues are cleared up. Don’t ignore the tax notices because any issues will not magically go away. In fact, they will very likely get worse.
What is a tax notice, and why would I get one?
A tax notice is a paper or electronic notification sent to you from a taxing jurisdiction, usually, a state government, alerting you to an issue with your account, return, or license. There are many reasons why you would receive a sales tax notice. The state may be notifying you of a balance due or a credit on your sales tax account. The state may be requesting additional information or have a question about your sales tax return. Sometimes, the state adjusts your return and is notifying you that they did so. In most cases, some sort of action is required on your part in order to resolve the tax notice issue.
Some notices turn out to be just a timing issue or one hand at the state not knowing what the other is doing. However, sometimes the notices may be very important and must be addressed quickly.
Why is it important to manage notices?
Ignoring sales tax notices will, more often than not, create more problems, but the most common result is that you will end up paying more. Most states have penalties and interest that are incurred on outstanding returns and past-due balances. So, if the tax notice was notifying you of a balance due on your sales tax account and it goes ignored, the interest and penalties will continue to accrue until it is paid. If the balance due goes unpaid long enough, the state will send it to collections or create a lien, neither of which are good for your business.
Just because a tax notice does not relate specifically to a balance due does not mean that it will not result in you paying more. License renewal is required on a periodic basis in some states, and they notify you of the renewal requirement through tax notices. Ignoring those tax notices means your sales tax license will expire, and the state may close your sales tax account. This will prevent you from filing and paying timely, which means you will pay more in penalties and interest.
What is notice management, and who should handle it?
Notice management is having a dedicated person that receives tax notices, makes determinations on the action required to clear up the issue, and ensures that the issue is resolved. Determining why a sales tax notice was received is not always an easy task. It requires someone seasoned in the realm of sales tax.
Tax notice management can be handled internally if you have a dedicated, experienced member of your staff that has the time to handle the notices. However, if the person you designate to manage your sales tax notices is unfamiliar with the sales tax filing process, they may have a difficult time interpreting the issues presented in the sales tax notices. This, in turn, may delay the resolution of the issues presented in the tax notices, and any delays will often result in additional amounts owed. You can attempt to contact the state to better understand why you received a notice, but it can be difficult to get a hold of some states and even more difficult to get an informed individual on the line who will be able to assist you with the issue presented in the tax notice.
Notice management can also be handled externally. There are many companies that charge for tax notice management, but this additional cost is a consideration for any business that feels out of their depth when dealing with tax notices. Some software companies say they manage notices for free as part of their sales tax preparation service. The question to ask these software companies is, what do they consider managing notices? Some companies believe that keeping a list of notices they receive and telling you they need to be cleared is managing notices. In our opinion, if they are not clearing notices, they are not managing notices. They are merely acting as a notification service.
At STM, our notice management means we actually clear your notices. We offer notice management as a FREE service to all our clients as part of our sales tax filing service whenever the notice is not the client’s fault. In other words, if a client sends the funds late or not at all, there will be notices. We call these notices client generated since they are the clients fault. However, all notices that are not the client's fault we clear for free as part of our service. We also clear the client-created notices, however, there is a fee for those.
Contact us to set up a consultation to discuss how we can assist you with your sales tax filings and tax notice management.
By: Rebecca Church
This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.