June 15, 2015
As you might guess, a major nexus pitfall includes unpaid taxes. Issues such as uncollected sales tax and flow-through entity issues are sometimes missed. Avoiding sticky situations requires an understanding of what creates nexus for different taxes, and in different jurisdictions.
If I don’t file tax returns, what happens to me?
Well the worst thing that can happen is essentially you get audited. And states have gotten more sophisticated, more ways of finding you. They can find you either through maybe auditing one of your customers or auditing one of your vendors. Maybe you're filing one sort of tax like a payroll tax, it's very common for companies to register for payroll in a state and avoid registering for other types of taxes, states will do a cross-match and that's one way they find you. Now the worst case scenario is that you end up getting audited and get a large assessment. Very often with income taxes it's a tax people may view it as a tax you may have owed anyway and so you have some interest and penalties, they may view it as a minor issue. Something like sales tax is a bigger issue generally. Very generally speaking a sales tax is something you're actually collecting from someone else so they're paying and you're collecting and remitting it to the state as the state's agent. However if you get audited you are secondarily liable for that so you may get audited and what's happened is you've actually taken on your customers’ liability so in addition to paying your own tax you're paying someone else's tax which is the worst case scenario. Very often people say ‘well I'll be able to go back and get it from my customers’ - maybe you can, maybe you can't. Depending upon your type of business some of the customers may be out of business so you can't get it back, some customers may be uncooperative, sometimes if you've got let's say an internet retail and you've got thousands of transactions with very small tax amounts to go after all those people is just impractical so it really does end up being that you're taking on someone else's liability.