The Pitfalls of Closing a Sales Tax Permit: What to Consider
Summary: This blog post provides a comprehensive guide on what to consider when closing a sales tax account, including key steps, common pitfalls, and expert advice from TaxValet on maximizing compliance.
Are you currently holding a sales tax permit but believe that you no longer have sales tax nexus? If so, it’s important to know what steps to take in order to close your sales tax account. In this blog, we’ll discuss the key things to consider when closing a sales tax license and how to avoid any common pitfalls along the way.
Here’s a summary of this article:
- If you have a sales tax permit, but no longer need it because of a lack of nexus in the state, you can close your sales tax account.
- Before closing the account, make sure to check if there is a period of time when the permit still needs to stay open (“trailing nexus”).
- Be careful when closing an account as even if you fall below the economic nexus threshold, other factors like having employees or contractors may still create obligations for collecting and remitting taxes.
- Don’t stop collecting sales tax until the permit is closed otherwise you will be responsible for out-of-pocket payments.
- Consider keeping your permit open as it could trigger an audit or prevent issuing valid resale certificates in some states.
- TaxValet provides personalized guidance on all aspects related to sales taxes including the sales tax permit closure process; free initial consultations are available.
Can I Close My Sales Tax Account If I No Longer Have Sales Tax Nexus?
If you have a sales tax permit, but you do not need it anymore because you no longer have sales tax nexus in that state, you can close your sales tax account. Closing the account means that you will not be responsible for collecting or remitting sales taxes, and won’t need to submit any sales tax filings. Before closing the account, check if there is a period of time when the permit still needs to stay open (“trailing nexus”). You can find out how long this is for each state in this blog post.
Make Sure You Don’t Have Nexus Before Closing Your Permit
It is important to be careful when closing a sales tax account. Even if you fall below the state’s economic nexus threshold, you could still have sales tax obligations in the state if you have employees, contractors, or inventory there. There are many other factors that should be considered, which is why doing this on your own can be risky and dangerous. That’s why it is better to work with TaxValet’s team of sales tax experts.
Ensuring you don’t still have a physical presence in a state is particularly important for online sellers who may have inventory in 3PL warehouses (like Amazon) and are unaware that they have a physical presence in the state.
What Happens if I Don’t Close My Sales Tax Account and No Longer Have Nexus?
If you don’t close your sales tax account then you should still be collecting sales tax and filing returns with the state. Your obligation to collect and remit tax doesn’t go away because you no longer have nexus. Auditors may still chase you down and create tax assessments if filings are missing. Your responsibility to submit sales tax filings only ends once your sales tax account is officially closed with the state.
Can I Stop Collecting Sales Tax if I No Longer Have Nexus in a State?
Even if you no longer have sales tax nexus in a state, you still have an obligation to file and remit sales tax until your permit is closed. You should not turn off your sales tax collection settings until you have submitted your final sales tax return to the state and have confirmed that the account is closed. If you stop collecting sales tax before the account is closed, you may need to pay for the tax out-of-pocket. You should sto collecting sales tax from your customers on the date that your sales tax permit is closed.
Free State Audit Risk Guide
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State-by-State Audit Risk Percentages
Can I Submit $0 Sales Tax Filings if I No Longer Have Nexus?
You should continue to collect and remit sales tax even if your sales tax account is still open (even if you still have nexus). You should not submit $0 filings. If you no longer have nexus in a state and have submitted $0 returns, it might be possible to close the account using a permit end date in the past. However, this is risky and usually complicates things further and is not advised. The best thing to do is to continue collecting and remitting sales tax up until the day that the permit is officially closed.
How Can I Close My Sales Tax Account in a State?
If you need help closing your sales tax accounts, you can either use our do-it-yourself guide online or consider letting our team of experts handle your sales tax work for you. If you’d like to learn more about working with us you can schedule a free initial consultation by clicking here.
Reasons To Keep Your Sales Tax Permit Open Even if You No Longer Have Nexus
Even if your business no longer has sales tax nexus, there may be reasons why it is still beneficial for you to keep your sales tax permit open. These include:
- Believing that you may need to re-open the permit again soon
- Avoiding unnecessary audit triggers
- Being able to create valid resale certificates
Believing that you may need to re-open the permit again soon
One reason why you might want to keep your permit open is that you believe you may need to re-open the permit again in the near future. This could be caused by hiring employees in the state, or believing that you’re going to cross the state’s economic nexus threshold. It is a lot of work to open and close state accounts and adjusting tax collection settings, so you should really only close the account if you think it will be closed for a while.
Avoiding Unnecessary Audit Triggers
You should also keep in mind that closing state sales tax accounts can be a trigger for an audit. Why put yourself on a state’s radar unnecessarily, especially if you think you might need the permit opened in the foreseeable future?
Being able to create valid sales tax resale certificates
Finally, you should keep in mind that having an open sales tax permit means that you can still issue sales tax resale certificates in states where a permit is required. If you were to close your account, then you might not be able to issue valid resale certificates to purchase inventory tax-free. For example, California requires that you hold an in-state sales tax license in order to purchase inventory tax-free from suppliers.
TaxValet is Here to Help
If you’re still unsure about whether or not to close your sales tax permit, or if you need help with sales tax compliance in any state, TaxValet is here to help. Our team of experts can provide personalized guidance and advice for all of your sales tax needs.
We offer free initial consultations so that you can see how we can best assist your business with sales tax compliance. Schedule a consultation today and find out how TaxValet’s team of professionals can make sales tax easy!
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