Statute of Limitations and Sales Tax

A statute of limitations is a law that dictates the maximum amount of time after an event that legal action can be taken. In the case of sales and use tax, state laws establish limits on how long a taxpayer is able to file a refund claim after making a tax error and how long the state has access to tax documents.

State Limitations

State statute of limitations: Usually, states are able to access tax documents for between 3 and 4 years but the date the clock starts can vary greatly between states. Most states have adopted the general IRS statute of limitations meaning that they have 3 years from the filing date to audit your tax return. However, if the tax liability is understated by 25% or more many states can go back 6 years to conduct an audit. In the event of tax fraud or tax evasion no statute of limitations exists.

To Pay or Not To Pay

Even signing any type of payment agreement or compromise offer with the state can reset the statute of limitations. It is important to review a state’s Estoppel Statue prior to assuming you have a fixed review period.

If you are considering not resolving a sales tax issue in favor of letting your state’s statute of limitations expire you may want to reconsider. The risks involved are substantial and as states continue to try and regain lost sales tax revenue your likelihood of being caught it greater than ever. Tax audits are costly since specialized individuals are needed to speak on your behalf with auditors. In extreme cases, felony charges can be filed against the individual deemed responsible and business doors have been closed.

Taking risks with your business and financial future is not necessary, especially when self-audits performed by sales tax software are so easy. Sales Tax DataLink offers a free evaluation to our readers, letting you see how the software works with you data in real time. We also offer outsourcing options that let us do all the heavy lifting for you, saving you time and money.

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