Hi,
If you sell into California, Connecticut, Washington, Utah, Wisconsin, or North Dakota, your Q3 sales tax return is due Monday, November 2, whether you have an office there or not. And if you’ve sold into any of them without registering, you may already owe, and no state will notify you that it started.
Here’s why it works that way. Since 2018, a state can require you to collect its sales tax based purely on how much you sell into it, with no office, no warehouse, and no employee there. Here’s where each state draws the line:
- California – $500,000 in sales in the preceding or current calendar year, with no transaction count
- Connecticut – $100,000 in gross receipts and 200 retail sales, both required, over the 12 months ending the prior September 30
- Washington – $100,000 in combined gross receipts in the current or prior year, with no transaction count
- Utah – $100,000 in gross revenue in the previous or current calendar year, with no transaction count
- Wisconsin – $100,000 in gross sales in the previous or current calendar year, with no transaction count
- North Dakota – $100,000 in taxable sales in the current or previous calendar year, with no transaction count
Here’s what makes this different from every other tax you deal with:
- Your customer’s tax becomes your cost – you were supposed to collect it. If you didn’t, the state still wants it, from you, and that money was never in your pricing
- The clock starts early – it starts the day you had nexus, not the day the state finds you
- Late costs stack fast – California charges 10%, Connecticut 15% or $50 (whichever is greater), Washington 9% that grows to 29% the later you are, Utah 2% to 10% depending on how late, and Wisconsin and North Dakota 5% a month up to 25%, all plus interest
And two things that catch people who assume they’re fine:
- One income tax return doesn’t clear you – income tax nexus and sales tax nexus are different tests. The federal protection that keeps many businesses from filing income tax returns in states they ship into has never applied to sales tax
- One remote employee creates nexus immediately – no dollar threshold, no grace period. If you’ve hired anyone in one of these states since 2020, that’s a date worth checking
Now the part worth acting on. Every one of these states runs a voluntary disclosure program. Come forward before they contact you and the lookback is limited, typically three years in California, Utah, and North Dakota, and four in Washington and Wisconsin, with penalties often waived. The details differ by state, Connecticut limits the lookback without publishing the number of years, and Washington warns of an unlimited look-back for tax you collected but didn’t remit.
That option closes the moment they reach you first. Once a state has contacted you or sent an audit notice, eligibility is generally gone. It’s a deadline with no date on it, which is exactly why it gets ignored.
The November 2 return is the natural time to check. If you’re registered, that’s your filing. If you’re not and suspect you should be, you’re reviewing Q3 sales anyway.
The reason this catches good businesses is that nothing in your books flags it. Your bookkeeper records revenue, not revenue by destination state against each state’s threshold. Your preparer sees the annual total. Nobody is watching the line you’re about to cross. That’s why we put everything under one roof:
- Monthly and annual bookkeeping with a dedicated bookkeeper
- Full-service payroll – multi-state, plus contractor 1099s
- Sales tax compliance – your sales checked against each state’s threshold, registrations handled, returns filed on time
- Quarterly tax estimates – so you know what you owe before April
- A full one hour review of every credit and deduction you qualify for – by the same team that files your return
- Personal and business tax returns – handled by the same team
Reply to this email by Monday next week and we’ll set up a free 15 minute call with our senior tax advisor to go over where you’re selling and whether you’ve crossed anything. Bring your last invoice from your tax advisor/strategist, tax preparer, bookkeeper and payroll provider – so we can discuss how you can have everything under one roof.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com