The Silicon Valley Bank Failure sent shockwaves through the sales tax world as many financial officers received an alarming email from Avalara. The message notified them that the Silicon Valley Bank failure had frozen their tax liability funding accounts, disrupting scheduled sales tax payments. Avalara clients using SVB accounts needed to immediately find new payment methods, since related credit cards and ACH transfers were suspended. The Silicon Valley Bank failure left companies scrambling to ensure timely tax compliance.
Silicon Valley Bank failure background
Silicon Valley Bank, a bank specializing in start-ups and venture capital firms, collapsed in 48 hours last week, creating the second-largest bank failure in U.S. history. The Wall Street Journal explains the failure as the result of investment losses and a run on the bank. SVB, which was one of the 20 largest commercial banks in the nation, had bought investments that lost value. Tech firms facing cash flow issues began to withdraw their funds. In many cases, these funds were uninsured because the amounts were far over the $250,000 the Federal Deposit Insurance Corporation (FDIC) insures. In fact, The Economist reports that 93% of the deposits at SVB were uninsured.
Whatever the cause, the bank was shut down by California regulators on Friday and the FDIC stepped in to take over.
Tax liability funding accounts
The problems of Avalara customers came about because of the use of tax liability funding accounts. Tax liability is the amount of taxes owed to the government. Avalara has its clients pay the amount of their tax liabilities into tax liability funding accounts 5 days before the filings are due. Avalara then sends the money along to the sales tax jurisdictions.
Different states have different sales tax filing deadlines, but most of them are coming up soon. Many Avalara customers will already have deposited funds into their tax liability funding accounts. When those accounts were at SVB, the funds were gone or frozen.
The FDIC has agreed to cover the deposits in a controversial bailout. However, they certainly will not be covered soon enough for timely sales tax compliance.
Sales Tax DataLINK doesn’t require tax liability funding accounts. We set up direct pay from our client to the States. Your company runs no risk with STDL.
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