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Temporarily or permanently closing a business? Don’t forget about sales tax

The COVID-19 pandemic has created a tumultuous state for businesses across the country as they’ve had to close either temporarily due to state restrictions or permanently due to consecutive months of low to no revenue. Businesses in the restaurant, retail, beauty, and fitness industries have been especially hard-hit with temporary and permanent closures. Now, states are urging business owners to stay on top of their sales tax obligations in order to avoid significant fees and penalties.

Here’s what you need to know if you’ve had to temporarily or permanently close your business.

Temporary closures should file a zero return – Many states require businesses to file sales tax returns even when no sales tax is due. This is called a zero return, and if you’ve had to temporarily close your business, you’ll want to make sure you’re still filing on sales taxes to avoid any penalties or interest. Depending on your state, these penalties can be costly.

 

Permanent closures have a few more steps – If you’ve had to permanently close your business, ensure that your:

  1. Sales tax licenses are canceled
  2. Sales taxes are paid before you close your account – If you don’t, the sales tax obligation falls on the business owner
  3. Final sales tax returns are filed

 

Some states allow you to perform these steps online.

 

In addition to your sales tax requirements, if you’re permanently closing your business, you’ll want to make sure to pay and file the following or you could be held personally responsible:

 

Employment-related taxes – Pay and file all of your final payroll tax deposits for federal and state employment on time. Be sure to notify both state and federal agencies you are going out of business and will not be filing future returns.

 

Asset sales – Selling assets, either in parts or as a group, require certain forms to be filed. Consult with your CPA to file the correct information.

 

Income taxes – You will need to file income taxes during your normal tax time, and some entity types will need to check a box indicating it’s your final return for the IRS. Sole proprietors can just stop filing Schedules C and SE. 

 

Above all, it is important to file your sales tax and payroll tax payments in a timely manner, or you could face stiff penalties from your state for failure to file.

 

Be sure to consult with your CPA on all your requirements for temporarily or permanently closing your business. Your CPA can assist with the completion of your sales tax requirements and for guidance specific to your state.

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