Comprehensive guide to Texas sales tax charge

TL;DR:

• If you don't comply with your sales tax obligations duly, you will have to face interests charges, penalties, and fines.
• If you don't complete your filing or payment, you will receive a notice, and your seller's permit may be suspended.
• These notices will include any collection action, along with penalties and interest charges, if you fail to comply with them.
• If you fail to file/pay on time, you will have to pay a percentage of the tax amount or make any other additional payment as a penalty.
• A $50 penalty can apply for late filing and a maximum penalty of 10% can apply for late payment.
• If you have received a notice, and fail to pay by the date mentioned in the notice, you will have an additional 10% penalty.
• If you don't pay the collected sales tax amount to the state for more than 60 days beyond the due date, you will have to pay interest on the tax amount.
• Interest charges are calculated based on the tax amount that you owe and the duration in which you have failed to pay.
• If you continue to fail in your Texas sales tax obligation and refuse to file returns, the state will take collection action (varying from security bonds to criminal charges) against you.
• In case you have accidentally missed the due date, you may be eligible for a payment plan.
• If you have to request a refund from the Comptroller, you have to submit a refund claim in writing by downloading a form and mailing it to the Comptroller.
• You may receive credit interest (which will accrue 61 days after the tax's due date or the date you made the payment, whichever is later) on the refunds.
• The credit interest rate will either be the treasury pool rate or the prime rate plus one percent, whichever is lesser.
• You can request a waiver through an online form, for penalties and/or interests that have been wrongly imposed.
• There's a limit to the number of reporting periods for which you can get a waiver—one annual reporting period, two quarterly reporting periods, and six monthly reporting periods.

If you are a seller with a sales tax obligation, you need to register for a permit, collect sales taxes, file returns, and pay the collected amount to the state. Missing out on any of these steps and ultimately failing to file returns and pay duly will lead to penalties and interests on the tax amount, and this could lead to a heavier liability for you. As a taxpayer, it is important to know the consequences that you could face for not completing your sales tax obligations promptly, as being aware of this could help you steer clear of them. This guide will explain the different liabilities, waivers, and refunds that you will have to know about, as a seller and taxpayer in Texas.

Notices

After collecting sales taxes from your customers, it is vital that you file returns and pay the collected taxes to the state by the due date. There are certain occasions where the Comptroller will issue a notice (a written communication with information about your liabilities) to you, either directly or through a private contracted collection agency: 

• If you don't file your return by the due date, you will receive a notice/bill with details of your sales data, informing you to file it within a certain period. Late filing will result in penalties and interest charges.
• If you have not paid the full tax amount, you will receive a notice/bill reminding you to pay the balance amount on receipt of the notice. In case of any disagreement, you can request a hearing and the process for doing so will be mentioned in the notice.  
• If you do not post a security bond, or refuse to file returns or pay taxes, you will receive a notice from the Comptroller regarding the suspension of your seller's permit/license. You will have to contact the Comptroller's office to schedule your hearing. If you fail to appear at this hearing, your permit may be suspended.

These notices will include any collection action that the Comptroller will take, along with penalties and interest charges, if you fail to comply with the rules.

Penalties

If you fail to file/pay on time, you will have to pay a percentage of the tax amount or make any other additional payment as a penalty.

For every late filing of returns, there will be:

• A $50 penalty (in addition to any other penalties or charges).
• For late payment of taxes, there will be:
• A penalty of 5% of the tax amount if you make the payment 1-30 days after the due date.
• A penalty of 10% of the tax amount if you make the payment later than 30 days after the due date.

If you have received a Notice of Tax Due from the Comptroller, and have failed to pay by the date mentioned in the notice, you will be imposed with an additional 10% penalty (the highest penalty being a total of 20% penalty).

Interest charges

Along with the penalties mentioned above, if you have failed to pay the collected sales tax amount to the state for more than 60 days beyond the due date, you will have to pay interest on the tax amount. Interest charges will be calculated based on the tax amount that you owe and the duration in which you have failed to pay.

While calculating your interest rate, you need to consider the percentage in decimals. The interest rate in 2021 is 4.25% (.0425). For a list of the updated interest rates, you can visit the Texas Comptroller's website.

To calculate the amount of interest you owe,

• Step 1: Multiply the tax amount by the annual interest rate in decimals.
• Step 2: Multiply this calculated amount by the number of days where you owe interest.
• Step 3: Divide the total amount you receive by the number of days in the year.

For example, you may have failed to pay your sales tax for more than 60 days post the due date, and therefore, you owe interest from the 61st day. So, if you owe a sales tax amount of $500 in 2020 (interest rate at 2020 was 5.75% or .0575) for another 60 days (in which interest has been accrued), then you would owe an interest amount of $4.71.

To simplify it, these are the steps you'd have to follow for the above example:

• You would have to multiply 500 by .0575 to arrive at 28.75.
• Then, multiply 28.75 by 60 to arrive at 1725.
• This amount should be divided by 366. The total amount would be $4.71.

Collection action

If you continue to fail in your Texas sales tax obligation and refuse to file returns, the state will take collection action (action taken against your failure to comply with your due liabilities). This can range from taking hold of your security bond to criminal charges. These are the collection actions that can be taken:

• Criminal charges
• Suspension of your seller's permit/license
• Freeze/seizure of your non-exempt assets
• Filing of a tax lien if you belong to a county in which it is applicable (all past liabilities, such as taxes, penalties, and interests, will have to be secured by a lien. This could negatively affect your credit rating)
• Pausing any outstanding state warrants that are payable to you.

To avoid any complications, it's recommended that you directly contact the Comptroller's office and discuss the issue at hand. In case you have accidentally missed the due date, you could still be eligible for a payment plan. However, regardless of whether you enter into a payment plan, collection actions against your business could continue. Once the Comptroller has sent you reminders and enough collection actions have been taken against you, the Attorney General's Office could then contact you and you may have to face civil action for continued failure in complying with the sales tax obligations.

Refunds

The Comptroller can issue a refund to you on the following occasions:

1. If you have wrongly collected tax from a customer, then you have to:

• Refund the buyer or
• Provide a credit to the buyer using this form and collect a resale or exemption certificate from them (in case they have bought it for resale).

After doing so, the Comptroller can issue a refund to you.

2. If you have sold a taxable item and if it is returned to you by the buyer:

• You can claim a credit on your sales tax return (Visit the Comptroller's website to know which form to use and how to claim a credit) or
• You can request a refund with the Comptroller for the same amount that you refunded to the buyer.

If you have to request a refund from the Comptroller, you have to submit a refund claim in writing by downloading this form and mailing it to the Comptroller.

If you have filed for a refund, the Comptroller will pay you credit interest on the refunds you are supposed to receive. The interest will accrue 61 days after the tax's due date or the date you made the payment, whichever is later.

The interest rate for this is determined based on the date of the refund claim. However, to determine the interest rate and for the refund claim to be considered valid:

• Your refund claim must be in writing with the reason for the refund claim, and the period in which you have made any overpayment must be specified.
• The refund claim must be submitted to the Comptroller's office within 4 years from the tax's due date.

The credit interest rate will either be the treasury pool rate or the prime rate plus one percent, whichever is lesser. In 2021, the annual interest rate (the prime rate plus one percent) is 4.25% (0.425) and the treasury pool rate is 0.511% (.00511).

To calculate your interest earned, follow a similar method to the one for calculating interest charges you owe:

• Step 1: Multiply the credit amount by the credit interest rate.
• Step 2: Multiply this calculated amount by the number of days interest has been accrued.
• Step 3: Divide the total amount by the number of days in the year.

Waivers

You can request a waiver through an online form, for penalties and/or interests that have been wrongly imposed for late filing/payment and failure to file/pay electronically respectively. The Comptroller will assess your request, and check if your business has been sales tax compliant previously. You will get a waiver only if you've filed sales tax reports and made payments duly.

If you have already paid the penalty amount, and then requested a waiver which is approved, you will get a refund for the penalty. However, there's a limit to the number of reporting periods for which you can get a waiver—one annual reporting period, two quarterly reporting periods, and six monthly reporting periods. If your business has received a waiver in the previous two years, you won't get another waiver unless the Comptroller decides otherwise.

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