Do You Overpay Sales Tax?
A recent survey by the The National Association of Manufacturers found that 78.3% of U.S. manufacturers expect a financial hit from the coronavirus. Many factories have been closed, have experienced supply chain disruptions, and have had extra expenses caused by the coronavirus outbreak. Even if sales are up, manufacturers may need to make special efforts to conserve cash right now. And yet, the distractions and disruptions of the past few months may also cause manufacturers to overpay sales tax.
Here are three facts to think about:
- A recent research report identified 10 industries that often overpay sales taxes. Manufacturing is one of them.
- Since the Supreme Court overruled Quill in 2018, many manufacturers have found themselves responsible for sales tax compliance in multiple states, and many have gone ahead and filed in all 50 states to keep things simple.
- Many states allow just three years for taxpayers to file for refunds of overpayment.
For manufacturers, these three facts add up to one conclusion: it’s time to check for overpayment of sales tax.
Why do manufacturers overpay sales tax?
One of the major reasons is that manufacturers are likely to sell directly to consumers in multiple states… but not in the same way retailers do. Manufacturers might drop ship products, sell at trade shows, sell legacy products or add-ons, or in other ways sell products in settings that are far from retail. Under Quill, manufacturers usually didn’t have to think so much about nexus.
Since Wayfair, the Supreme Court decision that overturned Quill, states have been able to compel remote sellers to collect and remit sales tax on sales. Many of those direct-to-customer sales suddenly put manufacturers in the position of remote sellers. They didn’t have ecommerce websites or retail catalogs, but they found themselves liable for sales tax.
Different states came up with these laws at different times. They set different thresholds. They had different exemptions. Some calculated sales tax liability on the basis of gross revenue and some went with taxable sales.
And of course the specific laws and regulations differed from one jurisdiction to another, with thousands of jurisdictions across the country. Add the coronavirus, which increased the urgency of sales tax collection, and changes grew fast and furious.
For many manufacturers, it made sense to overcorrect and pay the maximum possible until things settled down.
Can you get a refund?
Yes, you can. Sometimes a sales tax audit will turn up an overpayment, and the state will refund that money. But if there is no audit, the state will not go to any trouble to identify an overpayment on your part. You must request a refund or credit of the overpayment, and you must prove that there was an overpayment.
This can be a complicated process. Chances are, if you have made an overpayment when you filed your sales tax returns, you are not aware of it. You probably don’t have sales tax specialists on the payroll, and you might have been distracted or uncertain when you filed. Sales tax compliance might have been a new process for you over the past couple of years, and you might have had some trial and error going on.
The best plan is to outsource the issue to sales tax specialists like Sales Tax DataLINK. We can review your filings over the years available in the statute of limitations for the states you’ve filed with. We can identify errors, down to the invoice level. Then we can help you get the overpayment made right.
Different states have different statutes of limitations. Texas gives you four years, for example. California gives you three. If you began dealing with complicated sales tax compliance in 2018, as so many manufacturers did, this is the perfect time to get an overview of your compliance since then.
You could very well get a refund — and that would be even more welcome than usual during these difficult times.
If you don’t get a refund, you’ll have the peace of mind of knowing that your sales tax compliance has been successful and you don’t have to worry about that.
Either way, you can finish out the year with confidence. Call us at (877) 806-7715 and get the details.
a Luxury taxes are special sales taxes charged only on luxury goods, non-essential items that usually are expensive. In New York, for example, there's a luxury tax on the purchase of houses costing over $1,000,000. From 1991 to 1993 there was a "yacht...
a If you're looking into sales tax software options, don't forget to consider how you're going to get that software up and running. Just because you signed a contract and have the installation files in your possession doesn't mean you're ready to use...
a South Dakota is one of three states in the Union that charges the same sales tax rates for groceries as for other goods. Proposals to reduce or eliminate sales tax on groceries have come up in nearly every legislative session, including this year's,...