If you’ve just realized that your Mississippi business has not been collecting sales and use tax, you aren’t alone. Sales tax errors are a common source of compliance issues for small and growing businesses, particularly those that unintentionally ramp up sales in Mississippi or grow more quickly than expected.
However, not knowing about your sales tax obligations doesn’t erase those obligations. Even if you failed to collect sales tax, you still owe that money to the state. It’s important to understand the potential financial consequences you’re facing and tackle the problem before the state starts aggressive collection efforts.
Learn more about Mississippi sales tax requirements, what happens when you fall out of compliance, and how to get back on track. When you’re ready to discuss your tax concerns in greater detail, call Damiens Law at 601-873-6510.
Key Takeaways
- Mississippi typically holds businesses responsible for sales tax even if the business never collects it from customers.
- Failing to collect and failing to remit sales tax are different errors, but both may leave you owing tax debt.
- Your debt can grow quickly with penalties and interest unless you address it quickly.
- The state can hold you personally liable for your business’s unpaid sales tax.
- You may be able to resolve issues before the state reaches out to discuss your noncompliance.
Common Reasons for MS Sales Tax Errors
In theory, sales tax sounds simple. You charge the rate for your location on taxable sales, file the return on your required schedule, and pay the tax. But in practice, it’s much more complex—especially for new business owners. Errors often occur due to:
- Additional time for admin as the business grows: As a business starts to flourish, the administrative tasks (like taxes) that used to take a few minutes a month start taking more time.
- New products or services: Companies may expand into taxable products or services without realizing it, or start selling items with different tax rates.
- Changes in sales volume: In Mississippi, sales volume dictates filing frequency, and business owners may miss deadlines if they make enough sales that their tax filing schedule changes.
- System errors: Your point-of-sale (POS) system can automate a lot, but you still need to double-check on rates, item categories, etc., to ensure you don’t make errors.
- New registration requirements: If you trigger nexus in Mississippi, you must register for an account and start collecting taxes, but it’s easy to overlook.
Unfortunately, a lot of businesses may not even realize that they’re liable for additional taxes until the Department of Revenue comes knocking.
How Mississippi Defines Sales Tax Responsibility for Businesses
Businesses’ tax obligations in Mississippi are managed by the MS DOR. Per state law, businesses with nexus that sell taxable products or services are required to:
- Register for a sales tax permit
- Collect the appropriate amount of sales tax per state and local guidelines from customers
- File sales tax returns
- Remit the collected tax to the state
As is the case with most states, Mississippi treats sales tax as a trust fund tax. The business is essentially acting as a collector on behalf of the state. The money collected never actually belongs to the business—they hold it in trust for the state until their next payment date.
That’s why the state takes it so seriously when businesses do not pay sales tax on time or at all. Even if a business hasn’t collected sales tax from customers, the state is still owed that money.
Failing to Collect Vs. Failing to Remit Sales Tax
These two mistakes are often categorized together, but there are slight differences in how they are handled in Mississippi.
- Failure to collect sales tax occurs when a business does not charge a customer sales tax for a taxable good or service. They may not have realized that the transaction was taxable or that they needed to register and start collecting sales tax.
- Failure to remit sales tax happens when a business does charge customers sales tax but then never passes that money on to the DOR. Either they file their return and do not pay the amount due, or they do not file the return at all. Funds are often used for operational expenses instead.
In both cases, the amount of sales tax that should have been collected is due to the state. Even if a business did not collect money from a customer, the money they should have collected is owed to the state
Penalties on Unpaid Vs. Uncollected Sales Tax
With both issues, the DOR may charge penalties if you don’t pay or file on time, as well as interest. However, if the tax is collected but not remitted, the DOR has the right to assess a penalty of 3 times the tax due.
Who’s Legally Responsible If Sales Tax Was Not Collected?
Mississippi law is very clear about this: even if a business does not collect sales tax from a customer, the business is ultimately responsible for paying that tax to the government. The government will pursue the business for the unpaid sales tax, not consumers who did not pay it.
Typically, this means that the Mississippi DOR will assess the tax against the business. However, they do not require the business to pursue customers for the unpaid tax. Doing so is typically impossible or at least very impractical.
Unfortunately for business owners, that means that sales tax payments generally have to be made from the business’s operating funds if the tax wasn’t collected by the business.
How Uncollected Tax Becomes Delinquent Sales Tax Debt
When sales tax isn’t collected, businesses either don’t file or they file incorrect returns with underreported sales. When the DOR catches the issue, they may demand that the business file its returns, adjust the tax liability on filed returns, or estimate tax assessments for unfiled periods.
How does the DOR know you didn’t file a sales tax return?
Typically, the DOR discovers unfiled returns when a business has been filing but then misses a filing obligation or based on information on other returns. For example, if the DOR receives a corporate income tax return from a business, it may look into why it hasn’t received a sales tax return from that business.
Consequences of unpaid sales tax
Penalties and interest accrue on the debt, and the Department may begin aggressive collection actions (business tax liens, asset seizure, etc.) if there are no efforts to pay down the delinquent tax debt.
- Late filing penalty – 10% of the unpaid tax if you file or pay late.
- Additional penalty – an additional 10% penalty once you’re 60 days late.
- Interest – 1% per month, as of 2026.
How does the DOR estimate sales tax liabilities?
If you don’t file a sales tax return, the DOR may use previously filed sales tax returns, industry averages, or revenue numbers on business income tax returns to estimate sales tax. The agency may also demand sales records, which is also what they use to estimate sales tax in an audit.
Can the MS DOR hold you personally liable for unpaid sales tax?
State law allows the DOR to pursue individual owners, officers, and other responsible persons for the unpaid amount due—even if that amount was never collected from customers.
The risk of personal liability increases in cases with persistent noncompliance, sales tax that was collected but not remitted, and business closure that leaves the DOR unable to pursue the business.
Common Sales Tax Audit Triggers
If you’ve received an audit notice in the mail, you may be wondering what triggered the DOR to audit your business’s sale tax returns. Common triggers include:
- Sales tax returns arriving late or not at all
- Significant revenue but minimal or no sales tax reported
- Numbers far outside industry averages
- Data that does not match data from the IRS or third-party platforms
- Prior compliance issues
Once the DOR initiates an audit, the DOR can look back as long as they want when no return has been filed. If a return has been filed, they have three years from the date the return was due to assess tax.
Can You Correct Mistakes Before State Contact?
Being proactive is crucial when you identify a sales tax issue. When you take action before the DOR initiates an audit or begins enforcement actions, you generally have more options than if they’ve already taken action on your late sales tax payments.
Addressing errors upfront can help you reduce penalties, limit the state’s lookback period, avoid aggressive collection measures, and find a resolution that fits your business’s financial and tax situations.
Voluntary Disclosure Options
Mississippi has a Voluntary Disclosure Program that allows noncompliant taxpayers to come forward, voluntarily admit their nonpayment, and catch up while minimizing penalties and the lookback period.
When you are approved for the Voluntary Disclosure Program, you may enjoy these benefits:
- A three-year lookback period in most cases; however, if you have collected but not remitted sales tax, the lookback period may include all periods in which sales tax was collected
- Late filing and late filing penalties waived
- May come forward anonymously
The disclosure program is for taxpayers who haven’t registered for a sales tax account in MS. It’s not for taxpayers who had an account and just got behind on filing. Additionally, taxpayers must reach out before the DOR contacts them.
If approved for the program, taxpayers must catch up on necessary tax filings and payments within 60 days.
Staying Compliant Moving Forward
Sales tax compliance is a serious issue for Mississippi businesses, so once you get caught up, it is crucial that you set protocols in place to stay compliant. Key steps in this process include:
- Registering properly with the DOR, and updating your sales tax permit as required.
- Identifying taxable and non-taxable goods and services sold by your business.
- Setting up collection systems that gather the right amount from customers and funnel the funds into the appropriate account.
- Filing accurate, timely returns with full payment.
- Monitoring tax rule changes and updates.
Working with a tax professional who can handle your ongoing tax needs allows you to take a hands-off approach to this part of your company’s operations.
Why You Need a Tax Resolution Firm
Working with a tax resolution firm can make it far easier to tackle years of unpaid sales tax debt, the potential of personal liability, and noncompliance that risks your business’s sales tax license. At Damiens Law, we help with a wide range of complex sales and use tax situations:
- Liabilities that span multiple years
- Audits already underway
- Consideration of the Voluntary Disclosure Program
- Rapidly increasing penalties and interest
- Personal liability
- Escalating enforcement actions
Your business and your personal finances may be at risk. The sooner we begin pursuing a resolution that meets your specific financial needs, the more options you may have available to you. Let’s talk about your next steps now. Call us at 601-873-6510 or get in touch with us online to set up a consultation now.
Frequently Asked Questions
Am I liable for Mississippi sales tax that I didn’t collect from customers?
Yes. The DOR still expects full payment for the sales tax you should have collected, even if that money has to come out of your business funds.
Can I retroactively charge customers sales tax?
Typically, no. You may be prohibited in some cases by contractual agreements with customers, but even if you aren’t, doing so is incredibly impractical and is likely to damage your relationship with your customers.
What is the state’s Voluntary Disclosure Program?
This program allows taxpayers who have not registered with the state to disclose what they owe and catch up without paying penalties. They also benefit from a limited lookback period.
What if I collected sales tax but never paid it to the state?
This is a more serious situation, as the state may consider this mismanagement of government funds, and the MS DOR can add a 300% penalty in addition to the 20% penalties for late payments. It’s important to reach out to a tax professional right away.
Sources:
https://codes.findlaw.com/ms/title-27-taxation-and-finance/ms-code-sect-27-65-31
https://www.dor.ms.gov/sites/default/files/notices-technical-bulletins/Voluntary%2520Disclosure.pdf
https://www.dor.ms.gov/news/update-voluntary-disclosure-agreement-program
https://www.dor.ms.gov/sites/default/files/news/Voluntary%20Disclosure.pdf
https://www.dor.ms.gov/forms-resources/general-frequently-asked-questions
https://www.dor.ms.gov/business/sales-use-tax/sales-tax-rates
https://law.justia.com/codes/mississippi/title-27/chapter-65/in-general/section-27-65-55
https://www.dor.ms.gov/business/business-tax-frequently-asked-questions
