As a Maryland business owner, you strive to grow your business by selling more products, which increases your profits. As your business grows, you may find that your business is targeted for an audit due to a dramatic income increase, or your business may have been selected at random.
While an IRS audit can strike fear in most businesses and result in hefty fines, a State of Maryland audit should strike just as much fear. If an audit by the state finds unfiled sales and use tax, your business could face hefty interest payments or, in some cases, you could be held personally liable for the unpaid taxes.
Even if you are not facing an audit, if you have unfiled sales and use tax, contact the tax attorneys at Gabaie & Associates, LLC, to protect your business.
Sales and Use Tax
Sales tax and use tax are two separate taxes.
Sales tax applies to goods that your business sells. If your business sells goods in Maryland, your business is obligated to collect sales tax. Most goods are taxed at six percent, but alcoholic beverages are taxed at nine percent.
Use tax applies to goods or materials that your business purchases from out of state.
Some goods are exempt from paying sales and use tax. Agricultural products are exempt if they are purchased by a farmer and used for agricultural purposes. Food products sold by a grocery store or market designed for off-premises consumption are exempt from sales tax, however, if the grocery store or market prepares the food for on-premises consumption or carry out, the food is subject to the six percent sales tax.
If your business sells goods to organizations with an exemption certificate, your business is not required to collect sales tax. These exemptions include non-profit organizations, cemeteries, credit unions, or volunteer rescue or fire departments.
Most services are exempt from sale and use tax, however, Maryland law lists several services that are subject to sales and use tax. These include:
- Manufacturing personal property
- Transportation electricity or natural gas
- Commercial cleaning services
- Telecommunications services
- Credit reporting
- Security services
- The privilege to drink wine that has not been bought from a restaurant, club, or hotel (corkage fees).
Filing Sales and Use Tax Returns
Businesses that collect more than $15,000 dollars per year in sales tax must file sales tax returns monthly by the 20th day of each month. Those that collect less than $15,000 dollars per year in sales tax must file sales tax returns quarterly by the 20th day of the month at the end of the quarter. The Comptroller may notify your business that you have to pay monthly but very rarely allows a business that pays monthly to move to the quarterly schedule.
The sales tax due dates are as follows:
- April 20 for sales tax collected in January through March.
- July 20 for sales tax collected in April through June.
- October 20 for sales tax collected in July through September.
- January 20 for sales tax collected in October through December.
The sales tax return can be filed on paper or electronically. Payment is due when your business files the sales tax return.
A business files a use tax return quarterly to report goods or materials purchased out of state by filling out the Consumer Use Tax for Purchases. Use tax is paid quarterly by the 20th day of the month at the end of each quarter. You can file for credit with the Comptroller's office if your business paid sales tax in another state.
Businesses who file and pay their sales tax on time may qualify for Maryland's vendor discount on their sales tax. This discount is 1.2 percent on the first $6,000 of sales tax, and 0.9 percent on any additional sales tax for a maximum of $500 per sales tax return.
Penalties for Unfiled Sales and Use Tax
Ignoring your unfiled sales and use tax returns will not make them go away. The State of Maryland penalizes businesses who file and pay late in two ways. The first is by assessing a ten percent late payment penalty on your sales tax. The second is by adding 1.08 percent interest per month or partial month that your payment is late. This does not have a cap and will accrue indefinitely until you pay.
Failing to file your tax return on time prevents you from qualifying for Maryland's vendor discount on sales taxes.
If you have unfiled sales and use tax returns, the Comptroller of Maryland sends your business a Statement of Accounts notifying you that you owe taxes, interest, and penalties and that you have an unfiled required return. The balance, including all penalties and fees, is due immediately.
If your business provided goods or services to the State of Maryland, the state will not pay you until you address your delinquent sales and use tax.
If your business does not make payment arrangements or does not follow through with payment arrangements, the Comptroller may file a lien against your business, attach liens to your assets, or pursue legal action against your business.
Filing for bankruptcy does not eliminate your business's obligation to pay sales and use tax because these debts are not discharged. If the business does not have enough assets to pay the taxes, the business's owners or corporate officers can be held personally liable for the debt.
Contact an Experienced Maryland Sales and Use Tax Attorney
If your business has received a Statement of Accounts from the Comptroller of Maryland because of unfiled sales and use tax, contact the tax attorneys at Gabaie & Associates, LLC, today. This is not an issue that will go away if you ignore it, and the longer your taxes remain unfiled, the larger your penalty may be.
Attorney Juda Gabaie has the experience you need to successfully negotiate a mutually agreeable settlement with the State of Maryland while protecting your business's best interests. We can negotiate a payment arrangement that works for your business or contest the state's decision. Because interest may already be accruing on any unfiled sales and use tax, call us today at (443) 345-8291 or contact us online.