Tax evasion is nothing new, but sales tax evasion has been making headlines recently. Sales tax is the second largest source of revenue for most states, and many have been feeling the pinch lately as consumers spend more for services and shop online, diverting funds toward purchases that may not be subject to sales tax. States have responded by working to make more purchases taxable, but also by cracking down on sales tax evasion. Using new technology to compare records from one state to another and one department within a state to another, tax collecting agencies are making it harder to avoid paying sales taxes.
Since sales tax is paid at the time of a transaction, sales tax evasion is not as simple as income tax evasion — people can’t just claim that they didn’t make the purchase, fail to pay the tax, and walk out with their tax-free items. They can, however, buy a piece of art for their office in a jurisdiction where that is a non-taxable business expense, have it delivered to the office, and then quietly take it home and hang it on the wall. They can berth their yacht in Rhode Island, which doesn’t collect sales taxes on this service, instead of keeping it in Massachusetts, even though they live in Massachusetts. They can shop for high-ticket jewelry, persuade employees to ship empty boxes to out-of-state addresses, and call it an online sale.
Sales tax evasion scandals that make the papers are usually about luxury goods since they rack up sales tax amounts large enough to tempt consumers to evade their taxes. But businesses are another matter. Companies that want to avoid sales tax may skip collecting sales tax so they can undercut the competition on price for a large order. They might collect one amount and file another. They may ignore their nexus in a state to avoid filing sales tax altogether. Increasingly, companies that do these things are getting caught. The combination of new technology and stronger incentives to collect as much sales tax as possible adds up to less success in corporate sales tax evasion. Unfortunately, it also can add up to stiffer penalties and more diligent detection of errors.
Sales tax is so complex that it is easy to make mistakes. 90% of the companies Sales Tax DataLINK works with thought they were in compliance… but weren’t. The solution is to find your company’s errors before the state does. Use DisclosureLINK to identify areas of exposure, and you can often arrange to correct mistakes with amnesty — instead of facing audits and penalties. Let us provide you with a free evaluation of your sales tax position now.