Avoiding Audits | Don’t Skip Zero File Returns
All good things come to an end, and this time it’s our Avoiding Audits series. So far, we’ve covered under-filing in remote states and filing and remitting your payments on time. Today, we’ll take a look at something you may not even know exists- zero file returns, also known as zero filing of returns. What exactly are these, you ask?
Let’s say you are running an online business selling Space Jam shoe laces, and have tax obligations in multiple states. And let’s say one of those states is Illinois, but you haven’t sold any shoe laces there for a specific sales tax filing period. Do you need to file sales tax? It would seem that no sales means no tax to collect and remit.
Unfortunately, it’s a little more complicated than that. (Taxes, amIright?)
In many states, you are required to submit a sales tax return each reporting period, regardless of whether or not you’ve made any sales. If you haven’t made any sales, then you submit a ‘zero filing of return’, essentially letting the state know that you a) haven’t had any sales and, therefore, don’t owe any sales tax, but b) are still operating as a business in that state. (Some states like to know where you are, who you’re with, and what you’re doing.)
Depending on the state, if you skip a zero file return, you may be charged stiff fines and face other penalties. Even though you didn’t owe any sales tax to begin with, you could end up owing money! For example, in Colorado, there is a 10% late penalty, as well as an additional .5% fee for each additional month the sales tax return goes unfiled.
In some states if you fail to submit zero filing of returns you risk losing your sales tax license in that state. If you aren’t filing any kind of sales tax return, the state may assume you are no longer in business and proceed accordingly.
And of course, if you have tax obligation in a state and routinely skip filing tax returns, you may trigger an audit of your business. It’s much better to go ahead and submit a zero file return, so you can avoid the facepalm down the road.
To make things a little easier for you, we’ve compiled a list of the states that require zero file returns. If you have sales tax obligations in any of the following states, you’ll want to get in the habit of filing a sales tax return each reporting period, even when you don’t have any sales:
- New Jersey
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- Washington DC
- West Virginia
Well, this concludes our Avoiding Audit series, but check out our past posts for even more ways to avoid attention from ole Uncle Sam. If you have any additional questions about zero file returns, or how to automate your sales tax so these things are handled for you, feel free to reach out to the Taxify team anytime. We’re always here to chat, and love simplifying taxes for you.
Have some more questions? Let us know! We’re happy to help, and we love talking taxes.
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