Owning a restaurant or pizza place in Massachusetts requires good record keeping. The Massachusetts Department of Revenue takes sales tax compliance seriously. Fail to report sales, collect the proper tax or pay the DOR in a timely manner and the penalties can be substantial.
Initial attention needs to be devoted to understanding what is subject to the 6.25 percent meals tax. In addition, many cities and towns including Boston and Framingham have adopted the .75 cent local meals tax. In this post, we provide some tips for avoiding a visit from the state DOR. If questions arise or a tax audit is initiated, a skilled tax attorney can help you resolve the situation.
1. E-file prior to the deadline
Most businesses that collect the meals sales tax will need to file electronically. If you are starting a new business, applying for additional registration or owe a zero tax balance electronic filing is a requirement.
Monthly returns can be filed through the DOR’s MassTaxConnect and the system also accepts electronic payments.
Online filings receive a time-and-date stamp that provides proof of a submission before the due date. Similar to federal taxes, two penalties can be assessed when you fail to make the due date, these are:
- Late payment penalties will add up at one percent of the unpaid tax bill each month late to a maximum of 25 percent
- Failure to file penalties are the same
This means that if you miss the filing due date and are unable to make a tax payment for 5 months, you would be assessed a penalty of 10 percent the tax balance due. Then interest adds on too.
When negligence or disregard for tax law results in a substantial understatement of a tax liability things get more serious and a penalty of 20 percent is possible.
Multiple books or use of a personal account to funnel cash payments in order to avoid tax can lead to criminal felony tax evasion charges with a fine up to $100,000 and up to five years in prison. Willful failure to collect is a fine up to $10,000 and similar prison term.
2. Amend past mistakes
Mistakes happen and when you catch them, amendments can be made through a MassTaxConnect account. By correcting an error as soon as it is uncovered you can avoid penalties that the DOR has at its disposal to ensure compliance.
3. Keep records for six years
Complete, accurate records are the key and must include evidence of each transaction, which could be in the form of cash register tapes, meals checks or receipt books to name a few. If this information is electronic, make sure to have it backed up.
Hold onto these records for at least three years, but six might be even better. If the tax amount was understated by 25 percent or more, a return could be audited for up to six years. Similar to IRS audits, the DOR has an indefinite amount of time to audit when the return was not filed or contained false or fraudulent information.