There are only two things that are absolutely certain in this world, death and taxes. If you own a small business, if the first of these is far from your thoughts, the second certainly is not. We all know that if you charge sales tax on your merchandise, you are a de facto tax collector for the state and, sometimes, county and local government where you do business. You are given a tax rate, 10.25% in Chicago, for example, and you have to pay that amount on your sales. You, in turn, pass that along to your customers. They pay you the tax and then, at an appointed time, you pay the government.
Ever wonder what would happen if you don’t pay up?
There are a lot of businesses out there that are running on empty. Revenues are down, costs are rising, the banks won’t lend and these honest, hardworking folks are at their wits end trying to keep the doors open. They need cash desperately so many of them miss making those tax payments, hoping that they can pay late, or catch up with a payment plan just to get over the hump.
Is that you? Are you thinking about that being you, about putting off that tax payment to make it over the hump and then catching up with the payments?
Yes, the recession is terrible and every time one of the government’s stable of Keynesian whiz-kids sees “green shoots” or “light at the end of the tunnel” or shapes in the tea leaves or signs in the donkey’s entrails—whatever their method of divination this week—the recession comes in with a back-hand lick to remind us that it’s not over yet. We know this, and we know that the money could mean the difference between staying in business and closing your doors for good. It’s a sore temptation, but still, if it is you, I have five words of advice: Don’t even think about it.
I say this after reading an article on the Providence Journal website entitled, “1,200 R.I. businesses face closure over sales tax”. The upshot of the piece is summed up by one of the business owners standing in line to meet with a tax official. The man, Desmond Clark, owns a small video-game store in North Providence. He has been trying for months to negotiate a payment plan that would allow him to keep current on owed taxes, while staying afloat in a tough economy. “They didn’t want to hear it. They didn’t want any payment plan whatsoever,” said Clark.
If you owe taxes because you need the money to stay in business, the state will put you out of business. They will give you notice, of course, but in the end, if you don’t pay, you will be told that your business license or whatever official credentials you need to do business will not be renewed and that will be the end of it. You will be out of business. Another business owner in that tax line put it this way: “Yes, the rules state that we have a responsibility to pay our bills every quarter. But when your customers come in and they don’t pay you for a month, and then another month, and another month, businesses have no choice [in] the eyes of the state but to close up and get out.”
That, at least, is the idea in Rhode Island and, I would suspect, in many other states as well. They want that money and they are more than willing to put you out of business to get it. Does that attitude make sense? From the point of view of business growth, employment, and prosperity no it does not make any sense. From the more myopic point of view of funding government, it makes perfect sense, especially if they believe that another business will spring up after yours has been shuttered for non-payment of taxes. It also makes sense if the government simply looks at you as a deadbeat, rather than a business owner caught in a terrible squeeze between them and customers who cannot pay, someone they can help.
That, of course, is your problem, not theirs, and helping is hard, takes thought and effort and money. Like Desmond Clark said, they don’t want to hear it.
So, what can you do? As I said earlier, don’t even think about it. You may get over this hump, but what about the next one? On top of that, you would be putting your business at terrible risk by trying to save it in this way. You will need to cut costs in other ways and make sure you have good, clear records. However, if you do find yourself in hot water, even if its just a bit warm at the moment, don’t wait for it to begin boiling, get ahead of the taxman and request a meeting and learn what your options are. That way, you can make a calm, educated decision before the crisis hits. You may even be able to avert it altogether. Also, don’t go to this meeting alone. Have your attorney or tax professional go with you. They have knowledge and training that will help get you when discussing the matter with the tax authority.
Even though you do not benefit in any way from collecting these taxes, it is still your responsibility and the government takes that very seriously. Make sure that you do, too.