Illinois Sales Tax Help: 3 Steps to Get Caught Up and Avoid Trouble
This applies to retailers, merchants, and especially restaurants in Illinois.
Most businesses can keep up with paying and reporting the sales tax collected every month. However, it is easy to fall behind. If your business has some cash flow challenges, one result is falling behind on filing and paying the sales tax.
However, you can still get out of trouble.
This article covers three steps that you absolutely must take to get caught up on paying the sales taxes.
Why Does This Matter
Aside from every retailer or restaurant’s legal duty to “collect, account for, and pay over” sales taxes, there are some reasons you haven’t yet considered.
1. You could lose your Certificate to Collect Sales Taxes. Remember, the State of Illinois requires your business to collect tax for taxable transactions. If Illinois revokes or refuses to renew your Certificate, then you cannot operate. Not legally, anyway.
Even for those who have chosen to operate without a Certificate (which is a felony, by the way):
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An Illinois Department of Revenue Officer will come and close the business.
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Warning tape is applied to the doors.
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Posters are added to the windows.
This is incredibly embarrassing, whether it happens on Monday morning or Friday afternoon. Also, patrons will quickly post your state-required closing onto social media. Embarrassing!
2. Restaurants could lose their liquor license for failure to meet sales tax requirements. Just imagine the difficulty of operating a profitable business that relies on liquor sales. Except once the license of lost, there are no liquor sales revenue. Illinois will ensure that part.
3. The owner or operator could be publicly arrested and jailed. This activity, being an owner’s “willful failure to collect, account for, and pay over,” is a felony under IL law.
Under Illinois law, willful failure to collect, account for, and remit sales taxes is classified as a felony offense. The specific class of felony depends on the amount of tax involved:
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Class 4 Felony: If the amount of tax is evaded, it is less than $500.
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Class 3 Felony: If the amount is $500 or more but less than $10,000.
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Class 2 Felony: If the amount is $10,000 or more but less than $100,000.
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Class 1 Felony: If the amount is $100,000 or more.
Depending on the facts, the owner could even be held in custody (jail) until trial if a judge deems it appropriate. Note: If the business is in Cook County, that jail time is spent at the Cook County Lockup on 26th and California.
And that’s why it matters.
Illinois Sales Tax Help, IRS Tax Attorney (Naperville IL)
What Immediate Steps Can I Take to Get Caught Up?
Keep in mind that getting out of any tax sort of trouble requires what the state or federal government calls “full compliance”. Basically, you must make sure that the business is doing all the right things going forward and correcting past mistakes.
Here are what I believe are the 3 most critical steps to take.
1. Correct Your Mindset About the Taxes Collected
Until it is explained, many business owners see the sales taxes are money that belongs to the business. They feel that the taxes are just another part of business revenues, to use as the business chooses. This view is incorrect.
Sales taxes are among a class of taxes called “Trust Fund Taxes”. This means that the tax is collected from others, to be held “in trust” by the business, and paid over to the state government. Sales taxes never belong to the business. They are just collected and entrusted to be paid over to Illinois by the business.
Keep in mind that the owner can be held personally responsible for paying the tax if the business fails to pay it over to the state.
Good Idea: Every day, calculate the sales tax collected the day before. Transfer that amount to a separate bank account. Only use those funds to pay the tax. This works!
2. Prepare, File & Pay This Month’s Form ST-1 Sales Tax Return
Remember that getting out of any tax sort of trouble requires what the state or federal government calls “full compliance”. You must make sure the business is doing all the right things going forward.
Hire a local accountant. Maybe use the accountant that helped set up your LLC or corporation.
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Have that person prepare your sales taxes and monthly bookkeeping.
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Have the accountant show you how to pay online through Illinois’ MyTax system.
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Maybe that accountant can even help you with maintaining your payroll.
Hiring the local accountant could cost as little as $300 per month. Spend the money. It’s worth the peace of mind and the time you will save.
3. File Previously Unfiled Sales Tax Returns & Get a Pay Arrangement
This list may seem like big steps. But these 3 steps are easier when you have help. One of the best resources is a tax return preparer and accountant to handle the month-to-month reporting. That professional would likely be the same person to prepare and file the previously unfiled sales tax returns.
Provide the following information to the accountant:
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Now that you can access your MyTax account, request a report on your Sales Tax History. This tells the accountant which tax returns are unfiled.
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Find your past sales records. If the tax is accounted for, it will be even better.
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If your sales records are not available, the accountant may have to rely on your bank deposits. Don’t forget to estimate a fair amount for your cash sales.
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You will need to set up a payment plan. This plan requires that you fully pay the tax, and you get up to 24 months.