What to Do If You Haven’t Paid Tennessee Sales Tax

In Tennessee, you don’t have to worry about state income tax, along with eight other states. However, Tennessee does require consumers to pay sales tax and business owners to remit those taxes.

If you haven’t paid Tennessee sales tax and you are required to, there are steps you need to take now to avoid tax penalties and other legal trouble with the TN Department of Revenue (DOR). Find out exactly what to do if you have Tennessee unpaid sales tax, whether you are an in-state business owner or are an out-of-state seller with Tennessee nexus.

Remember, you can always call Joseph Damiens, a licensed tax attorney in Mississippi and Tennessee, for help with sales tax issues.

Key takeaways:

• Businesses are required to collect sales tax from consumers when they make qualifying purchases and send the taxes to the state of Tennessee.
• Failing to pay sales tax means you could face penalties and interest, liens and levies, or criminal charges.
• Pay what you owe if you can, or request a payment plan to make monthly installment payments. If you can’t afford your bill, consider an offer in compromise.
• You may qualify for penalty abatement if you can show reasonable cause.
• The voluntary disclosure program encourages business owners to disclose the unpaid sales tax, and penalties may be reduced or waived.

Who Must Pay Sales Tax in Tennessee?

Tennessee consumers have to pay sales tax on anything they buy that’s taxable, including tangible goods and certain services. It’s a business’s responsibility to collect this tax from consumers when they make a purchase and then send those taxes to the state. 

The tax rate is 7% across the state, but each county and city may have a different local rate. Businesses need to collect the state rate plus the local rate, if applicable. The use tax, which is the same rate as the sales tax, applies if the seller didn’t collect sales tax but the taxable goods were used in Tennessee. For example, this applies if you buy used goods from a seller who doesn’t collect sales tax, but it can also apply if you buy something out of state and pay no sales tax or a lower rate than the rate in your area.

Businesses must collect sales tax if they sell goods or services subject to sales tax in Tennessee and if they have nexus in Tennessee. Nexus means your business has a physical or economic presence in the state.

Tennessee requires out-of-state businesses to collect and pay sales and use tax if their total sales revenue in Tennessee is over $100,000 in the last year.

Why You Shouldn’t Ignore Tennessee Sales Tax

Collecting and remitting sales tax in Tennessee is important for your business to stay in good standing with the TN DOR. The state relies on sales taxes for revenue, and in fact, the sales tax makes up 60% of tax collections. This is what you risk when you fail to pay:

Tax Penalties

Penalties are an unfortunate reality when you don’t carefully comply with Tennessee state tax laws. If you don’t pay the sales taxes you owe, the state will hit you with a penalty that equals 5% of the amount you haven’t paid per month, up to 25%.

Building Interest

On top of penalties, expect some interest, too. The state charges 12.5% in interest on unpaid taxes currently, with the interest rate on installment agreements at 13.25%.

Tax Liens and Levies

The DOR may file a lien against your business if you haven’t paid your taxes. Note that this will only happen after the state has contacted you several times to get you to pay what you owe. A tax lien is a public record that alerts other creditors that the state has a right to your assets. The DOR may also levy your property to cover your tax bill.

Personal Liability

You may face personal liability for unpaid sales tax in Tennessee. If the DOR decides that you’re personally liable, they can seize your personal assets for the business tax debt.

Criminal Charges

In certain cases, the TN DOR may charge business owners with a criminal tax offense when their business doesn’t pay taxes. Business owners could have filed a false return or kept the sales tax they collected from consumers. Tax fraud and tax evasion can be both criminal or civil charges, and if found to have committed a tax crime, you may face jail time or expensive fines from the state.

What to Do First When You Haven’t Paid TN Sales Tax

It’s crucial to act quickly when you realize you haven’t paid taxes to the state but should have. Follow these steps first:

File and Pay the Owed Taxes

The first thing to do if you haven’t paid sales tax in Tennessee is to file your tax returns and pay what you owe. If you can’t afford what you owe, you should still file your return. You may qualify for an option to pay off your balance over time.

Consider an Installment Agreement

The TN DOR allows some taxpayers to pay off their tax liability over time through a payment plan, also known as an installment agreement. You can log in to your online account at TNTAP to request a plan and select the terms. This way, you don’t have to pay what you owe immediately and can make smaller monthly payments.

Apply for an Offer in Compromise

In some circumstances, the state may agree to an offer in compromise (OIC) to settle your tax debt for less. You will have to show a “verifiable inability to pay the full liability,” which requires completing an application and sending in financial information.

Request Penalty Abatement

If you can show reasonable cause for not paying your taxes on time, you may qualify for penalty abatement with the TN DOR. You must have a good tax filing history over the last two years and haven’t shown any willful disregard of the law or gross negligence. You can apply for a penalty waiver online in the TNTAP system. To qualify for abatement under voluntary disclosure, refer to the next section.

How Voluntary Disclosure Works

Your other option when you haven’t paid TN sales tax is something called voluntary disclosure. The TN DOR wants to get unpaid sales tax revenue since it relies on that income for state services. As such, it allows taxpayers to resolve their tax balance when they haven’t paid, waiving or reducing penalties. Upon disclosure, you can register with the system to pay for future applicable tax periods.

The look-back period is more limited under voluntary disclosure as well. This means that the department will only consider a certain number of past years when calculating taxes owed.

Essentially, if you disclose your unpaid sales tax voluntarily, you’ll get better terms with the state than if the DOR forces an assessment and requires you to pay penalties.

How the Tax Collection Process Works in Tennessee

For individuals and businesses in Tennessee, the DOR has a process in place for notifying taxpayers of delinquent taxes and trying to collect what’s owed. Here are the basics of this process:

• Tax notice in the mail: First, you’ll get a Notice of Proposed Assessment that tells you what your balance is and when you need to make your payment to avoid further penalties. This notice may come after you miss a deadline or undergo an audit.
• Final demand for payment: If you don’t do anything within 45 days of the first notice, the DOR will send a Final Demand for Payment, which again tells you what you owe. If you don’t respond to this notice promptly, the next steps will be more serious collection actions, including liens and levies.
• Intent to levy or lien: The next notice will be an Intent to Levy or a lien letter. These notices outline the previous attempts to get you to pay. If over two weeks passes and you haven’t done anything, the levy or lien process will begin.

You don’t want your outstanding taxes to get to this point. Your assets will be at risk if you don’t pay, and the state decides to levy your property, including your financial accounts, home, or wages.

Throughout this process, you’ll be given contact information of revenue officers within the department who you can call for help resolving your issue. When you have questions or are unsure how to deal with the TN DOR, reach out to Damiens Law to talk to a tax expert right away.

When to Call a Tax Attorney

If your case isn’t too complicated, you can likely resolve the issue quickly by contacting the TN DOR, participating in voluntary disclosure, or paying the sales tax you owe as soon as possible. However, these cases will call for a tax attorney:

• You have a large balance in unpaid sales tax.
• You are at risk of criminal charges, including tax fraud or tax evasion.
• You have been audited, and what you owe is a result of that audit.
• You’ve been notified that the TN DOR intends to levy your property or file a tax lien against you.
• The state has threatened to take away your sales tax license or business permits.
• You can’t afford your balance, even through a payment plan, and want to consider an option like an OIC.
• You need help understanding your options.

An experienced tax attorney can review your case, evaluate the business taxes you owe, and advise you on the right way forward. You never want to put your business at risk when you haven’t paid sales taxes. Talk to a tax professional who understands Tennessee tax law.

Work with Damiens Law When You Owe Sales Tax

Owing sales tax in Tennessee is a common problem, but you shouldn’t ignore your obligations as a business owner. As soon as you realize you owe taxes or receive a notice in the mail from the Tennessee DOR, act quickly to avoid further penalties and legal trouble.

If you owe sales tax but you’re not sure what to do, including whether you should apply for a payment plan or OIC, contact the team at Damiens Law. Our licensed tax attorney, Joseph Damiens, helps taxpayers in Mississippi and Tennessee with tax problems, helping them understand their options and break down complex tax law.

Contact Damiens Law today to set up a free consultation. Call us at (601) 873-6510.

FAQs About Unpaid Sales Tax in Tennessee

What Are My Options When I Owe Tennessee Sales Tax?

You can pay your tax balance right away if you’re able. If you can’t afford what you owe, you may qualify for a payment plan to pay off your taxes over time, or an offer in compromise to settle your debt for less.

Can You Go to Jail for Unpaid Sales Tax in Tennessee?

Yes, you could face jail time if you have unpaid taxes and the state charges you with tax fraud or tax evasion. However, in most cases, you won’t face criminal charges if you have unpaid sales tax. Make sure to act right away when you receive a notice in the mail about your tax liability.

Can I Settle My TN Sales Tax Debt?

You can settle your sales tax debt if you show the state that you can’t afford to pay based on your finances. The TN DOR may agree to an offer in compromise if they don’t expect to be able to collect more than you offer.

What Is the Statute of Limitations on Sales Tax in Tennessee?

The state only has three years from the date a tax return is filed to assess taxes on that return. If no return is filed, however, the state can assess taxes at any time. Deciding to participate in voluntary disclosure will give you a more limited look-back period for sales tax assessments.

Sources:
https://www.salestaxhelper.com/resources/state-sales-tax-guides/tennessee/
https://www.tn.gov/revenue/taxes/sales-and-use-tax.html
https://revenue.support.tn.gov/hc/en-us/articles/360058683911-SUT-115-Services-Services-Subject-to-Sales-and-Use-Tax
https://revenue.support.tn.gov/hc/en-us/articles/360057121372-GEN-16-Penalties-and-Interest
https://revenue.support.tn.gov/hc/en-us/articles/360059053892-CS-Liens-1-Why-Liens-are-Filed-Against-Taxpayers
https://www.findlaw.com/state/tennessee-law/tennessee-tax-fraud-and-tax-evasion-laws.html
https://www.tn.gov/revenue/tax-fraud/report-tax-fraud/employment-related-issues/business-related-tax-violations.html
https://www.tn.gov/content/dam/tn/revenue/documents/forms/general/f0200501.pdf
https://revenue.support.tn.gov/hc/en-us/articles/360059067232-CS-OIC-1-Defined
https://www.tscpa.com/news/1076-tennessee-department-of-revenue-updates-general-voluntary-disclosure-agreement-guidance
https://answerconnect.cch.com/document/jtn0109013e2c83b43f0b/state/explanations/tennessee/statute-of-limitations#:~:text=%C2%B661%2D520%2C%20Statute%20of,may%20begin%20at%20any%20time.