“Trust but Verify”-Simple Instructions for Every Business Owner

By June 16, 2014 Uncategorized

 

Here is a post from my GA June Newsletter.  Although this mentions Georgia, the same principle applies to any state where you are filing returns.  Trust but Verify!!

“When I started my business, I hired someone to file my sales tax returns, but last week I just received a notice from the Georgia Department of Revenue stating that no returns or payments have been made for the past year. What do I do?”

 During May, I had heard this message (or something very similar) from five different Georgia businesses.  These are the worst calls to get because there is so little that can be done to fully mitigate the damage created by the people they entrusted to handle their sales tax filings.  My simple message to every business owner when it comes to having others file your sales tax returns is “trust but verify”. 

 Each scenario was different, but the common theme in these calls is the same.  The business owner hired an employee to file returns or has an external bookkeeper, accountant, or CPA to handle the tax filings.  Sales are made, tax is collected, and the business owner assumed everything is going just fine until a notice arrives from the Georgia DOR.  In some cases, the owner saw the notice and we were able to quickly respond.  In other cases, the notices went to the person responsible for filing returns and they were hidden. At this point, panic sets in and things quickly spiral out of control.  In addition to the back taxes that are owed, there is 25% penalty added, and interest is accruing at 1% a month. The interest and penalties are compounded if the state issues a fifa notice.  In one case, the late filing and payment of $120,000 of tax became a $235,000 sales tax problem with penalties and interest.

 CPAs must advise their clients that, as a business owners, it is THEIR obligation to ensure that the sales tax collect is remitted to the state.  It is THEIR obligation to “trust but verify” that the person hired to do this is, in fact, doing what needs to be done.  They must verify that the return is filed and that the return is paid. This verification should be part of your monthly financial analysis and closing process.  As business owners, they are personally liable for any mistakes made by other.

 Here are some basic sales tax pointers for small businesses:

 File sales tax returns even when no tax is due. Failure to file returns when due can subject you to a $100 penalty for each return. 

  1. Don’t register for a sales tax number until you are sure that your business is operational. 
  2. Don’t call the Department of Revenue to ask for help.  The DOR is not in the business of helping you manage your sales tax issues and they are not your friend.  Contacting the DOR will only complicate your situation. Get professional help as soon as you suspect you have a problem.
  3. Don’t ignore the problem and hope it will go away.  It won’!  Get help immediately.  The sooner the better.
  4. Get help immediately upon being contacted by the DOR.  Do not attempt deal with them directly. 
  5. “Trust but verify.”  I don’t care who does your sales tax returns, make it a point to verify that each month your returns are filed and paid. If returns are not filed and taxes are due, see Question 3 above!