Business owners are often surprised to hear that January and July are the two busiest sales tax months. Most Americans think “tax deadline,” and their minds immediately jump to the March and April income tax deadlines. These dates are so ubiquitous with “taxes” that many companies even offer Tax Day freebies like donuts, coffee, and ice cream to ease the nation’s collective pain.
But sales tax is a whole different animal. January (at the end of the calendar year) and July (states have a June fiscal year-end) are such busy sales tax months that we’ve dubbed them each a “Sales Tax Perfect Storm.”
Here’s a little peek into why sales tax due dates are so different from income tax due dates:
States Make the Rules When it Comes to Sales Tax
We hear a lot of people say things like “Will the IRS audit me if I don’t collect sales tax correctly?” The good news is that the IRS will most definitely not audit you if you have a sales tax problem. The bad news is this is because sales tax is governed at the state level.
While forty-five states (and Washington DC) all have a sales tax, each state can set sales tax due dates and filing frequencies whenever they please.
This is why if you collect sales tax in more than one state, you’ll sometimes pay sales tax by the 20th of the month in one state, on the 15th in another state, and on the last day of the month in yet another state.
States and Local Areas are Hard Up for Money
Even though it’s often hard to see, we all know that the money we pay in taxes goes to pay for things like schools and roads. Often, these necessities get funding from state and local tax revenue. And one of the main ways states, counties, and cities obtain this tax is through sales tax. So next time you see you collected $1,000 in sales tax from customers, just think: That may have helped pay for the new park downtown.
But most states are straining under budget issues. They don’t want to wait a whole year before asking businesses to pass along the sales tax they’ve collected. So they generally require retailers to file and remit sales tax monthly, or quarterly. Which brings us to…
Sales Tax Filing Frequency is Based on Sales Volume
In general, the higher your sales volume in a state, the more often that state will want you to file and pay sales tax. You can find each state’s sales tax filing frequency thresholds here.
This is also a good reason not to ignore any form of communication from your state. If business is booming, they may have you file sales tax more often. On the flip side, if business has fallen off, they may even assign you a less frequent sales tax filing schedule. (Who said the Tax Man didn’t have a heart?)
If you are a very new business or a small business without much in-state revenue, your state may only require you to file and pay sales tax once per year – in either January, at the end of the calendar year, or July, after state's fiscal year ends in June. And that’s why January and July end up being the “sales tax perfect storms” – because nearly every online seller, no matter how massive or tiny, will have a sales tax due date.
Do you have a July sales tax return due? You can find out by finding your state and filing frequency in this list of July 2017 sales tax filing due dates.