What happens if you overcharge sales tax

And then on top of that, you're going to get penalties for calculating incorrectly. So you want to have the right rates when it comes to sales tax. Our next statement comes from, Alan, who's a controller at a retail company.

Now Alan says he sells out of Oregon in the mini-states and he doesn't charge sales tax because he's selling out of Oregon and their sales tax rate is zero. So for instance, he's got a salesperson in Illinois and he drop-ships product to Illinois to support that salesperson. But, he doesn't charge sales tax there because Oregon has zero percent Alan, Alan, Alan. That isn't how sales tax works generally either.

You see, most states have a destination based sourcing for sales tax rates. That means, if you have some type of sales tax liability in Illinois and you're shipping to Illinois, that's the rate you have to use. And the state rate is 6.

You can't use Oregon rate. Now luckily for you Alan, you only fall into one of these categories. Penalties and interest, so, here again, you want to have the right rate. The final statement we're going to look at today comes from Frank the C. Frank says, "I've been collecting tax in 30 states for the last several years, but I never filed cause it was too difficult. Because you just might have the opportunity to eat some. If you collect sales tax, that's the state's money.

And if you don't give it to them, it is possible that you could end up in jail. Not only that, but if states find out, they're almost surely going to charge you copious amounts of penalties and interest for what you've done. So, what's the point here? Well the point is not that these people should go out and become sales tax experts. They're experts at growing their business. The point here is, there's a real opportunity for outsourcing when it comes to sales tax.

Outsource it to technology that can handle it all for you and you can focus on doing what you do best, growing your business.

Thanks very much. I'll see ya next time. Tax types. Sales and use tax Retail, ecommerce, manufacturing, software. Consumer use tax Buyer-owed taxes. International tax Customs duties, import taxes, managed tariff code classification.

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No credit card required. Midsize business solution Use tax automation software to help your business stay compliant while fueling growth. Enterprise solution An omnichannel, international tax solution that works with existing business systems. Retail Sales tax for online and brick-and-mortar sales. Software Tax compliance for SaaS and software companies.

Manufacturing Sales and use tax determination and exemption certificate management. Marketplaces Marketplace facilitator tax laws. Accounting professionals Partnerships, automated solutions, tax research, education, and more. Supply chain and logistics Identify and apply tariff codes to products for cross-border shipments. Beverage alcohol Manage beverage alcohol regulations and tax rules. Energy Tax compliance for energy producers, distributors, traders, and retailers.

Direct sales Tax compliance services for direct sales, relationship marketing, and MLM companies. Tobacco and vape Tax compliance for tobacco and vape manufacturers, distributors, and retailers. Schedule a demo. Why automate. Our platform. Her work has appeared on various websites. By Marilyn Lindblad. Complexity Keeping track of sales tax rates and rules for all 50 states is a daunting task. Penalties Overcharging sales tax can lead to civil penalties.

Litigation A business that charges its customers too much sales tax could be opening itself up to a class-action lawsuit. Prevention With careful attention to sales tax regulations, merchants can reduce the risk of overcharges or eliminate them altogether. Related Articles. That means an online retailer gets to choose from more than 14, different possible sales tax rates when figuring out how much sales tax to charge a customer.

With the notable exception of Alaska, each state with a sales tax has a statewide sales tax rate. States use sales tax to pay for budget items like roads and public safety. The state sales tax rate is the rate that is charged on tangible personal property and sometimes services across the state. In some states, the sales tax rate stops there.

The other states, though, also allow local areas to set a sales tax rate. In this case, you may collect a state sales tax rate, but also a percentage set by the county, city or other taxing district. Just like states use sales tax to pay for public safety, etc. When looking up a sales tax rate try it now!

But that rate is made up of many different rates, like:. A savvy consumer caught it, and our I-Team helped fix it. David Ho noticed he paid too much sales tax. The sales tax rate in Cypress is 7. The difference for his order: 30 cents. Not a huge sum, but as Ho points out - it adds up. This isn't the first time Ho's computer-like mind has caught a sales tax overcharge. So what happens when a business charges customers too much sales tax?