Forgetting to register, charging the wrong rate or holding onto collected tax too long can turn into a bill far larger than the tax itself. States treat sales tax as money that belongs to them the moment you collect it. This guide explains the penalties for not collecting sales tax or not remitting it, with real examples from Texas, California and New York, and the steps to fix the problem before it grows.
Key takeaways
- If you fail to collect sales tax you owed, the state can bill you for the tax, even though you never charged customers.
- Late filing and late payment add penalties and interest.
- Owners and officers can be held personally liable for unpaid sales tax in some states.
- Voluntary disclosure programs can reduce penalties if you come forward first.
Failing to Collect vs. Failing to Remit
| Problem | What it means | Typical consequence |
|---|---|---|
| Failure to register | Selling without a required permit | Penalties for operating without a permit; back taxes |
| Failure to collect | Not charging customers tax you should have charged | You owe the tax yourself, plus penalties and interest |
| Failure to file | Not submitting returns on time, including zero returns | Late-filing penalties and estimated assessments |
| Failure to remit | Collecting tax but not paying it to the state | Late-payment penalties, interest and possible personal liability or criminal charges |
Penalties for Not Collecting Sales Tax: State Examples
Texas
The Texas Comptroller adds a 5% penalty on tax paid 1 to 30 days late and a 10% penalty on tax paid more than 30 days late. If you pay after the date on a Notice of Tax Due, another 10% is added, for a total of 20%. Interest starts on the 61st day after the due date. Late filers also lose the 0.5% timely-filing discount.
California
California’s Sales and Use Tax Law imposes a 10% penalty on tax not paid on time, plus interest for each month the tax remains unpaid.
New York
Operating without a required Certificate of Authority can cost up to $10,000 in penalties. New York also makes responsible persons, such as owners, officers, partners, members and certain employees, personally liable for the business’s unpaid sales tax, even when the business is a corporation or LLC.
Real-World Example: Paying Texas Sales Tax 45 Days Late
A Dallas shop owes $4,000 in sales tax for a quarter and pays 45 days after the due date:
- Penalty for paying more than 30 days late: $4,000 × 10% = $400
- Lost timely-filing discount: $4,000 × 0.5% = $20
- Total extra cost: $420, before any interest that would start after day 60
Had the shop never collected the tax at all, it would also owe the $4,000 out of its own pocket, because it cannot go back and bill its customers.
Other Consequences
- Audits and look-back periods. States can assess several years of back taxes, and the look-back can be longer if you never filed.
- Liens and levies. Unpaid assessments can lead to liens on property and levies on bank accounts.
- Permit revocation. Some states can suspend or revoke your permit, which stops you from selling legally.
- Criminal charges. Willfully keeping collected sales tax is treated as a serious offense in many states.
How to Fix a Sales Tax Problem
- Stop the problem from growing. Register now and start collecting on new sales. See how to get a sales tax permit.
- Estimate what you owe. Total your past taxable sales by location and apply the correct combined rates with our sales tax calculator.
- Consider voluntary disclosure. Many states offer voluntary disclosure agreements that limit the look-back period and waive some penalties if you come forward before the state contacts you.
- Request a penalty waiver if you have reasonable cause, such as a first-time mistake. Texas, for example, accepts waiver requests for late reports and payments.
- Keep better records. Save exemption certificates, marketplace tax reports and filing confirmations, and track sales tax filing deadlines.
Conclusion
The penalties for not collecting sales tax go beyond the tax itself: late penalties, interest, lost discounts and, in some states, personal liability for owners and officers. Register where you have nexus, charge the right rate, file every period and pay on time. Use Tax Rate Center and our state sales tax pages to keep your rates current.
Related: if you already have past exposure, a sales tax voluntary disclosure agreement can limit back tax and waive penalties.
Related: already received a bill? Learn how to waive sales tax penalties and interest.
Frequently Asked Questions
What happens if I didn’t collect sales tax?
The state can assess the tax you should have collected, plus penalties and interest. Because you did not charge customers, the tax usually comes out of your own profit.
What is the penalty for paying sales tax late in Texas?
Texas adds a 5% penalty if tax is paid 1 to 30 days late and 10% if it is paid more than 30 days late, with another 10% if paid after a Notice of Tax Due. Interest begins on the 61st day after the due date.
Can I be personally liable for my business’s sales tax?
Yes, in some states. New York, for example, holds responsible persons such as owners, officers and certain employees personally liable for unpaid sales tax, even if the business is a corporation or LLC.
Can sales tax penalties be waived?
Often, yes. Many states waive penalties for reasonable cause or first-time errors, and voluntary disclosure programs can reduce penalties for businesses that come forward on their own.
Is it a crime not to remit sales tax?
Willfully keeping sales tax collected from customers can be a criminal offense in many states, in addition to civil penalties and interest.