Sales of goods and some services are subject to sales tax in many states. In addition to states, many cities collect sales tax as well. Some states like Maryland exempt specific items from sales tax. For example, sales of food by grocery stores or sales of medicine are exempt from sales tax in Maryland.
The following state agencies administer assessment and collection of sales and use taxes in Washington D.C. (DC), Maryland (MD), Virginia (VA), Massachusetts (MA) and New York (NY):
- District of Columbia Office of Tax and Revenue (OTR)
- Maryland State Department of Assessment and Taxation (SDAT)
- Virginia Department of Taxation
- Massachusetts Department of Revenue (DOR)
- New York State Department of Taxation and Finance
As a rule, the vendor acts as the state’s agent and collects the required sales tax from the purchaser. Vendors including retail establishments in states such as Maryland are required to obtain a use and sales tax license.
Under most state laws every vendor or retailer who has made sales subject to tax must file a sales and use tax return and report the amount of sales tax collected to the state taxing authorities. Such sellers must also keep complete and accurate records of all taxable sales and the amount of tax collected. Failure to file sales and use tax return may result in imposition of civil or criminal penalties on the nonfiler. Out-of-state vendors need to determine whether they need to file a sales and use tax return. Such a filing is required when the out-of-state vendor has sufficient business dealings, or nexus, in the state where the purchaser is located. Usually a period of limitations applies to sales and use tax collection. For example in Maryland, subject to some exceptions, an action to recover sales and use tax may not be brought after 4 years from the date the tax is due.
Similar to civil and criminal penalties for unreported income or for under-reporting, underpayment or nonpayment of federal taxes, states charge penalty and interest for delinquent sales and use tax obligations or for late payment of such taxes. Many states criminally prosecute sales and use tax offenders if such underpayment or nonpayment of tax was willful.
State governments have strong tools at their disposal to collect back taxes. In the event of existence of sales and use tax liability or delinquency, states may impose tax liens and levies. In general, any unpaid tax (including sales and use tax), or unpaid interest and penalty, constitutes a lien on all property of the taxpayer. For example, a wage lien may be imposed for violation of sales and use tax rules after a notice of levy has been sent to the taxpayer. States may also levy or seize property of the taxpayer for nonpayment or underpayment of sales and use tax. State tax collectors may also file a proceeding in court against the delinquent sales and use taxpayer.
The focus of many tax audits of businesses is the proper collection and reporting of sales taxes and detection of any sales and use tax violation. If you are a small business owner and need help in understanding the application of sales tax rules in your state please contact Kamyar Mehdiyoun, sales tax attorney in Rockville, Maryland. We are a tax law firm specializing in tax debt relief and will assist you in your sales and use tax problem or dispute.