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Sales Tax 101

What are Accelerated Sales Tax Payment Programs?

by Jennifer Dunn

Anybody who has to collect and remit sales tax knows that states want their money in a timely manner. In fact, the more sales tax a retailer collects from buyers, the more often states require them to remit sales tax. While a low-volume or hobby seller might only have to file and pay sales tax once per year, a high volume retailer is often required to file and pay sales tax monthly. 

Or, in some states, even just a few days after the taxable period ends. 

At least, this is the growing trend when it comes to very high volume retailers. 

So, what’s going on here?

What’s the deal with accelerated sales tax payment programs? 

At its core, an accelerated sales tax payment program is when states require that a high volume business pays sales tax more often than other businesses. For example, most states have a threshold where a business that collects above a certain amount in sales tax is required to file sales tax monthly. Historically, monthly was the most common sales tax filing frequency for high volume businesses.

But accelerated programs allow states to require sales tax remittance from retailers even more frequently. They may require twice monthly payments, or an additional payment mid-year. Or they may be like Massachusetts’ new program as adopted in the Fiscal Year 2021 budget.

Recently Massachusetts became the latest state to require that very high volume retailers remit sales tax due just a few days after it’s collected. Starting April 1, 2021, certain Massachusetts business sales tax filers will be required to remit tax collected through the 21st day of a month by the 25th day of that same month

In other words, high volume retailers have just four days to figure out how much sales tax they’ve collected from Massachusetts buyers and remit that sales tax to the state. 

The state will apply a 5% penalty on underpayment unless the business can prove that underpayment is due to a reasonable cause. The state is allowing a little leeway, though. They won’t impose that 5% if the business can prove they paid at least 70% of the sales tax collected up until the 21st of the month. 

This timeline applies to businesses that collected more than $150,000 in Massachusetts sales tax in the previous calendar year. 

Don’t worry if you aren’t a high-volume seller. The Massachusetts accelerated sales tax payment program doesn’t apply to businesses that collect less than $150,000 in the previous calendar year (at least not yet.)

States with Accelerated Sales Tax Payment Programs

By instituting an accelerated sales tax payment program, Massachusetts is following a growing trend. However, not all accelerated sales tax programs are created equal. Here’s a quick rundown. 

Remember, if you are a high volume seller in one of these states, be sure to read all correspondence from the state taxing authority. They will generally let you know if and when an accelerated payment is due. 

Minnesota requires taxpayers whose sales and use tax liability in the state’s prior fiscal year (July 1 to June 30) exceeds $250,000 to make an additional June accelerated payment each year. 

Ohio taxpayers whose annual tax liability exceeds $75,000 per month are required to make accelerated payments.

Pennsylvania businesses who have sales tax liability of $25,000 or more in the 3rd quarter of the previous year are required to prepay sales tax.

Michigan taxpayers that had $720,000 or more of Sales or Use tax liability in the previous calendar year are required to make accelerated payments.

Virginia businesses with $10 million or more in taxable sales in the 12-month period ending June 30, 2019 were required to make an accelerated payment in June 2020. This threshold is up from $4 million in taxable sales in 2018. 

As you can see, other states’ accelerated payment programs are not as aggressive on timeline as the Massachusetts program. 

Why accelerated sales tax payment programs?

Massachusetts governor Charlie Baker put this new trend into words when he claimed that the new program “modernizes the timeline for sales tax remittance and collection, which has not been significantly updated in decades.”

This is an argument we have seen over and over again in the past. Lawmakers seem to think that businesses can collect and pay sales tax almost immediately, forgetting things like payment processing time or, more troublingly, sales tax complexity.

Businesses need to make sure they are set up to follow complex sales tax rules, such as exempting groceries. Even Massachusetts doesn’t make this simple. Clothing priced at under $175 in Massachusetts is exempt from sales tax, but this requires special software like the TaxJar API for retailers to collect the right rates. 

This new law may be asking for more than retailers can rightfully give. Here at the TaxJar blog, we’ll keep an eye on this new program when it goes into effect in April 2021 to see how this plays out. 

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