Oops! I Forgot to Collect Sales Tax from a Customer. What Now?
The sales tax audit report is complete and your company owes hundreds (or even thousands) of dollars in tax which was never collected from your customers. What now?
First, remedy the problem with one of two alternatives:
Option 1: Rebill customers to collect the tax
Find out if your customers have already paid use tax, or have been assessed tax under audit. If so, provide the state with documentation, such as California's XYZ letters, proving the tax was remitted.
If use tax was not paid by the customer, in most states, you can collect the tax now. Admit your mistake and ask for payment, while apologizing profusely.
Option 2: Pay the tax and let your customers off the hook
Explain to customers that you have mistakenly not billed tax and no exemption certificates were provided in the past for their purchases. You are not going to ask them for these payments but you must begin to charge sales tax now.
Making them aware of this oversight protects them in the event they are audited and assessed for these transactions.
Second, check your processes to avoid future mistakes
Immediately correct these mistakes and set up your customers’ accounts to collect taxes on future transactions. If the assessment is high or this mistake was made with several customers, chances are good your company will be audited again within the next 3-5 years.
Most importantly, take this opportunity to evaluate your sales tax processes and correct other costly mistakes. It may be a good time to consider a professional sales tax process review. Cherry Bekaert offers many options including our exclusive Compass Complete Assessment.
To help determine if your sales tax processes need tweaking, check out these 20 signs that point to a review: