Article by David Joseph, co-founder, DAVO by Avalara
It’s no secret restaurant owners are busy people. From back office tasks to managing employees to ordering food, the list goes on and on. Calculating, collecting and paying sales tax doesn’t always make it to the top of the to-do list. Yet, the penalties and risks associated with not paying sales tax are steep.
Falling behind on sales tax happens to more businesses than you might think. Cash management can be challenging for restaurant owners and many may not have the funds set aside to pay sales tax when it’s due. In fact, our records show that about 60% of merchants were behind when they started using DAVO Sales Tax to automate their sales tax. You are not alone, and there are steps you can take to get back on track and out of debt to the State.
4 tips to get back on track with sales tax payments
1. Stop the bleeding. Make a sales tax plan today.
While you will need to address the back sales tax owed, put a plan in place for current sales tax today. If you don’t ensure that current sales tax is being accounted for and paid, you may be creating an endless cycle of late or missed payments. Sales tax automation integrates with your POS system and automates the entire sales tax process. Perhaps most importantly, apps like DAVO Sales Tax set aside the funds collected from sales tax each day and then use those funds to file and pay sales tax when it’s due – automatically.
2. File all past due returns to determine what you owe.
Once you have a plan in place to manage current sales tax liabilities, determine how much you owe in back sales tax. File back sales tax returns – even if you cannot pay right now. While it may be painful to take this step, filing the returns shows a good faith effort with the State revenue department.
3. Use your sales tax plan as leverage in negotiations.
It’s important to show a good faith effort that you’re trying to pay back taxes. Showing that you have a sales tax plan in place, whether it is DAVO or your own manual sales tax management, can be beneficial in negotiations with the State. We have heard from some sources that tax officials like to see that a merchant is using DAVO because automation ensures that sales tax will be paid accurately and on time. With a plan and good faith effort to pay, you can put yourself in a better position to work on a mutually beneficial arrangement with the State.
4. Determine a repayment plan.
Even if you pay just a little at a time initially, start to pay back what you can. Then, spend some time researching repayment options that offer favorable terms and interest rates. Many POS systems offer loans that can be repaid directly from a percentage of your sales, so you pay more when sales are good, and pay less when sales are slow. You may also consider a personal loan or even a plan directly with the State. The more good faith you’ve built with the State, the better chance you have of negotiating favorable outcomes. Keep in mind, if you need to finance your repayment, you may want to consult an accountant to help you decide which route to take.
Sales tax liability never goes away
The long term risks of not paying sales tax add up quickly. For one, the penalty and interest that is charged on non-paid balances can be between 5%-50% of the balance due. If you fall too far behind, the State may decide to place a lien on your business which creates a host of financial problems, like getting a loan.
Sales tax is a personal liability. Even if you close your business, you are still personally liable for the unpaid sales tax and penalties. Even in bankruptcy, sales tax liability does not disappear. You can’t escape sales tax debt, which is why it’s so important to get back on track.
Tackle your sales tax challenges
Remember, you’re not alone. Many restaurant owners have gotten behind on sales tax and have found their way out of trouble by taking steps like those shared here. Sales tax liability is serious, which is why it’s best to tackle your back sales tax head on.
DAVO Sales Tax can help you get back on track to start and keep you out of trouble moving forward. Automating sales tax takes just a few minutes to set-up and then you never have to worry about sales tax again. The app is free to try for the first month. Put your sales tax on autopilot and stop worrying about how it will get paid.
As a former restaurant owner, David Joseph is no stranger to the struggles of restaurant sales tax. A self-proclaimed sales tax evangelist, David co-founded DAVO by Avalara, a sales tax automation platform that integrates directly with the point of sale.
