The penalties for not paying sales tax can include monetary penalties levied in the form of fines and owed taxes plus interest as well as harsher penalties such as prison time.
However, the exact penalties will depend on your local and state tax jurisdiction, as well as other complicating factors like e-commerce sales.
Can You Go to Jail for Not Paying Sales Tax?
Individual states and municipalities have written their own sales tax laws regarding penalties for failing to pay and submit a sales tax return. Since there is no federal sales tax in the United States, business owners must ensure that they pay individual state governments and cities their fair share of sales tax.
The short answer to this question is “yes.” You may be required to serve a prison sentence for “willfully” failing to remit sales taxes on transactions as this is a felony in many states. The next section details the state-by-state penalties for purposely failing to collect sales tax.
It’s important to note that in order to legally charge sales tax to customers, most states require applying for a sales tax permit in each state where you have a taxable nexus. If you do business in multiple states, you’ll need to register in each of those states.
The Difference Between Civil and Criminal Penalties
Civil penalties typically focus on repayment with interest and do not include jail or prison time. Criminal penalties, on the other hand, can span the penalty spectrum from fines to imprisonment on the basis of a judge’s leniency and local laws.
Determining Sales Tax Nexus
One key aspect in determining sales tax responsibility depends on your business’s presence or economic nexus in a particular jurisdiction. For instance, most businesses must have a physical presence such as an office or other substantial presence in a given region in order to assume responsibility for sales tax payments to that jurisdiction.
Sales Tax Penalties by State
This table provides the most recent sales tax penalties levied by each state. The exact penalty will also be dependent on the particular local tax jurisdiction in which your business resides. This table only shows penalties from the state government.
|Sales Tax Penalty
|Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming
|These states levy penalties with interest accrued due to nonpayment. The exact tax and penalty owed can also be modified by the state government, agreements made with individual businesses who are non-compliant, and other penalties at the local municipal level of government.
|Alaska, Delaware, Montana, New Hampshire, and Oregon
|These states do not collect sales tax. However, individual penalties levied by local municipalities may be incurred at the city level for failures to collect, file, or pay sales tax.
How to Waive Sales Tax Penalties
Tax jurisdictions typically do not allow for the waiving of sales tax penalties. If you are involved in a criminal case associated with sales tax collection, then an attorney will offer guidance on navigating the judicial process.
In some cases, your business may be able to work out a repayment plan with the government’s revenue collection department (usually called the Department of Revenue or Department of Taxation). These negotiations may be able to lessen the monthly payment burden on your business.