Sales tax is a government-imposed tax on the sale of goods and services.
Typically, the tax is levied at the point of purchase and is added to the price of the item or service.
This tax is collected by the seller and later remitted to the appropriate tax authority, such as the state or local government.
Tax laws cover a wide range of issues, including income tax, property tax, corporate tax, and sales tax. Sales tax laws determine the tax rates, taxable items, exemptions, and the collection and remittance process for businesses.
A sales tax attorney helps businesses and individuals navigate the complex world of sales tax laws and regulations. They provide guidance on sales tax compliance, represent clients in audits, handle disputes with tax authorities, and assist with sales tax appeals and litigation.
What Is a Use Tax?
A use tax is a tax imposed on the use, storage, or consumption of a taxable item or service within a specific jurisdiction when sales tax has not been paid.
Use taxes often apply to items purchased from out-of-state or online retailers where the purchaser did not pay sales tax.
Use tax rates are typically the same as sales tax rates and are meant to create a level playing field for in-state and out-of-state retailers.
How Much Sales or Use Tax Do I Have to Pay?
The amount of sales or use tax you need to pay depends on the tax rate in your jurisdiction and the price of the taxable item or service. Each jurisdiction has the authority to set its own tax rates, which can result in variations across different locations. Tax rates varying by location means that the sales or use tax you pay on a particular item or service can differ depending on where you make the purchase or where the item is used, stored, or consumed.
To understand how the sales or use tax rate in your jurisdiction affects the amount you need to pay, consider the following example:
Suppose you purchase a taxable item priced at $100, and the combined state, county, and city sales tax rate for your location is 8%. To calculate the sales tax amount, you would multiply the price of the item ($100) by the tax rate (0.08): $100 x 0.08 = $8. In this case, the total amount you would pay for the item, including sales tax, would be $108.
In contrast, if you were in a different location with a combined sales tax rate of 6%, the sales tax amount would be: $100 x 0.06 = $6, and the total amount you would pay for the item would be $106.
To determine the specific sales or use tax rates for your location, you can consult the tax authority’s website for your state, county, or city. These websites typically provide information on current tax rates, as well as any exemptions, tax holidays, or special tax districts that may apply.
Additionally, many jurisdictions offer sales tax calculators or lookup tools that can help you determine the exact tax rate for a specific address or location.
When Do I Owe Sales And/or Use Taxes?
You owe sales tax when you purchase taxable items or services within your jurisdiction.
You may owe use tax for online and out-of-state purchases if the seller did not collect sales tax at the point of sale. Many states now require online retailers to collect internet sales tax on behalf of the purchaser.
What Happens if I Report the Wrong Amount on My Tax Forms?
You may face penalties, interest, and additional taxes if you report the wrong amount on your tax forms. The consequences depend on whether the error was intentional or unintentional.
Unintentional Errors
If the mistake was unintentional, you might face a smaller penalty and can potentially correct the error by filing an amended return.
Suppose you run a small online retail business and recently started selling a new product. Unaware that the product falls under a taxable category in your state, you inadvertently failed to collect sales tax on those sales. A few months later, you receive a notice from your state tax authority informing you of the oversight.
In this case, you may face a smaller penalty for unpaid taxes. To correct the error, you can file an amended sales tax return and pay the taxes due, along with any penalties and interest. By cooperating with the tax authority and demonstrating that the mistake was unintentional, you may be able to minimize the consequences.
Intentional Errors
If the error was intentional or due to fraud, the penalties can be much more severe, including criminal charges.
Imagine you own a large retail store and have intentionally underreported your sales to avoid paying the full amount of sales tax you owe. You’ve been engaging in this practice for several years, and one day, a whistleblower reports your fraudulent activities to the tax authority. The tax authority conducts an audit and uncovers evidence of your intentional tax evasion.
In this case, you could face severe penalties, including substantial fines, possible imprisonment, and the potential loss of your business license.
The tax authority may also pursue other people involved in the fraud, such as employees or accountants who knowingly participated in the scheme.
Property Seizure
Property seizure can result if you fail to pay your sales or use taxes, but this typically happens as a last resort after other collection methods have been exhausted. Tax authorities may first issue notices, impose penalties and interest, or place liens on your property before resorting to property seizure.
Let’s say you own a small manufacturing business and have fallen behind on your sales and use tax payments.
Despite multiple notices from the tax authority, you have been unable or unwilling to pay the taxes, penalties, and interest owed.
The tax authority has attempted to collect the debt through wage garnishment and bank account levies, but these measures have proven insufficient. As a last resort, the tax authority decides to seize your business property to satisfy the outstanding tax debt.
They place a lien on your property and schedule a public auction to sell the property. The proceeds from the auction will be used to pay off your tax debt, with any remaining funds returned to you.
In this scenario, the property seizure results from a lengthy process of collection efforts that ultimately failed to resolve the outstanding tax liability.
Do I Need a Lawyer to Help Me With My Sales/Use Tax Issues?
While it is not always necessary to hire a lawyer for sales or use tax issues, consulting with a tax lawyer can provide valuable guidance, particularly if you are facing complex tax situations, disputes, or audits. A tax lawyer can help you understand your obligations, navigate the tax laws, and represent your interests in negotiations or litigation with tax authorities.
LegalMatch is an online legal matching service that can connect you with experienced tax lawyers who handle cases with sales and use tax issues.
By submitting your case details on LegalMatch’s platform, you can receive multiple responses from qualified attorneys who can review your situation and provide advice on the best course of action.
LegalMatch also offers a satisfaction guarantee, ensuring that you will only be matched with attorneys who are committed to your case and have a proven track record of success.
Use LegalMatch today to streamline your search for legal representation and find the right tax lawyer to help you with your sales and use tax issues.
