Owe State Trust (Sales) Tax?

What Are State Trust Taxes?

A “Trust” tax is one collected by a business from another party and held in trust until it is turned over to the appropriate government taxing authority.  A few common examples of state “Trust” taxes are:
  • Sales Tax
  • Excise Tax
  • Fuel Tax
  • State Withholding (payroll) Tax
One thing that makes Trust taxes different from other taxes is that business owners and other responsible individuals can be held responsible for payment of the tax.Tax liens will often be filed against the business and individual owner.  If the business closes, the tax is still due and will be collected from the individual owner(s).

What If My Business Owes State Sales Tax?

The basics remain the same – file all missing tax returns and begin making current sales tax payments as soon as possible.  Remember, current tax compliance is the foundation of every back tax resolution.Then, it’s important to get into a monthly payment plan with the Department of Revenue (or Dept of Taxation, Comptroller’s Office, etc.) as soon as possible.  If the sales tax debt goes unresolved for too long, the state will revoke your sales license/permit.  Once that happens, the states typically require full payment of the back taxes to reinstate it.

The states view a business as its collection agent.  Collecting sales tax and turning it over to the state part of the responsibility that comes with selling goods/services.  It’s part of the deal.  When the tax isn’t turned over, the state is quick to take away the right to sell.
I just wanted to thank you for your care, knowledge, excellence and expertise with respect to my back tax owed.  You have demonstrated the tools and skills necessary to negotiate with the IRS, which can be difficult to most business owners.
Robert D.
Doctor and Small Business Owner

What If My Business Owes Tax to the State and IRS?

It’s a good idea to resolve both issues at the same time.  The IRS will need to know if your business is making monthly payments to the state as part of a formal Installment Agreement, or if you have requested a monthly Installment Agreement, or if the state is demanding payment.  In some cases, the IRS will allow a business to pay a lower monthly payment for a period to accommodate another creditor, such as the State, and increase the monthly payment after the other debt is fully paid.  

For example:
  • State monthly payment of $500 for 24 months
  • IRS monthly payment of $500 for the first 24 months and $1,000 thereafter until the debt is paid in full
The key is to get a jump on both debts early and get each resolved quickly.

Will Bankruptcy Get Rid of My Business's State Tax Debt?

That is a question for a qualified bankruptcy attorney specializing in business tax.  But you can expect that “Trust” taxes, both IRS and State, will not be completely discharged in a bankruptcy.  If you’re considering bankruptcy, we suggest talking to at least 3 bankruptcy attorneys.  We also recommend contacting us for a quick strategy session.  It's often that case that bankruptcy isn't the best option if a business tax debt is your main reason for filing.

Learn About Your State's Tax Collection Guidelines