Facing a State Sales Tax Examination or Collections Action? What Businesses Need to Know
State sales tax examinations and collections actions are among the most disruptive and least understood tax problems facing businesses today. Unlike income tax audits, sales and use tax matters frequently involve multiple years of transactions, estimated assessments, significant penalties, and fast-moving collection activity. These cases can threaten not only a business’s cash flow, but also the personal finances of owners and officers.
At Childress Law Firm P.C., we represent businesses and individuals throughout Georgia and nationwide in state and local tax examinations, audits, appeals, and collections matters, with a particular focus on sales and use tax disputes. Understanding how these matters arise and how they escalate is critical to protecting both the business and the people behind it.
Why Sales Tax Audits Are So Common
Sales and use tax is one of the primary revenue sources for states and local governments. Because businesses collect sales tax from customers and hold those funds in trust for the state, revenue departments aggressively enforce compliance.
Sales tax audit activity often results from routine audit cycles, industry-specific enforcement initiatives, data sharing between taxing authorities, economic nexus enforcement following Wayfair, marketplace facilitator reporting, and third-party or anonymous referrals. Businesses that operate in multiple states, rely heavily on exemptions, or sell online face heightened exposure.
What Triggers a Sales Tax Examination?
Sales tax examinations frequently begin with small discrepancies and expand rapidly. Common triggers include mismatches between income tax and sales tax filings, high exemption or resale certificate usage, late or missing returns, amended returns, drop-shipping arrangements, and prior audit adjustments.
Once an examination begins, the scope often broadens. Inadequate records can lead auditors to rely on estimates rather than actual transaction data.
Estimated Assessments, Penalties, and Interest
Sales tax audits regularly involve sampling and extrapolation. When records are incomplete or poorly maintained, states may estimate tax due over several years, often producing assessments far larger than the actual liability.
In addition to the tax, states may impose penalties for failure to file, failure to pay, or negligence. Interest accrues continuously and can significantly increase the total amount owed. In Georgia and many other states, penalties can reach 25 percent or more of the tax due, before interest is added.
Sales Tax Collections, Trust Fund Taxes, and Personal Liability
Sales tax is not treated like ordinary business debt. Because it is collected from customers on behalf of the state, it is classified as a trust fund tax. This distinction gives revenue departments broad collection authority.
Most states, including Georgia, permit the Department of Revenue to personally assess sales tax liability against a responsible person. This may include owners, corporate officers, managing members, or anyone with authority over financial decisions, tax filings, or payment of taxes. A responsible person assessment can impose personal liability even when the business operates as a corporation or limited liability company.
Once assessed, the state may pursue collection through liens, levies, garnishments, and other enforcement tools.
License Suspension and Business Operations at Risk
Unresolved sales tax liabilities can jeopardize more than finances. Many states, including Georgia, have the authority to suspend or revoke business licenses when sales tax obligations are not met. This may include general business licenses, professional licenses, and occupational permits.
For businesses involved in the sale of alcohol, the risk is even more severe. State and local authorities may suspend or cancel alcohol licenses for sales tax noncompliance, sometimes with little advance notice. Loss of an alcohol license can effectively shut down bars, restaurants, convenience stores, and event venues overnight.
Once a license suspension or revocation process begins, reversing it can be difficult without prompt legal intervention.
Sales Tax Debt and Bankruptcy
A common misconception is that bankruptcy will eliminate sales tax debt. In many cases, trust fund sales tax liabilities are not dischargeable in bankruptcy, particularly when the tax was collected or required to be collected and not remitted to the state.
Responsible person assessments frequently survive bankruptcy proceedings as well. As a result, business owners may remain personally liable even after a business closes or reorganizes. Relying on bankruptcy without first addressing sales tax exposure can leave individuals in a significantly worse position.
Why Early Legal Representation Matters
Sales tax matters move quickly and appeal deadlines are often short. Failing to respond promptly or attempting to handle an audit without experienced counsel can result in expanded audit periods, inflated assessments, lost appeal rights, personal liability, and license enforcement actions.
Early legal involvement can often limit the scope of an audit, challenge improper sampling methods, reduce or eliminate penalties, negotiate manageable payment arrangements, defend against responsible person assessments, and prevent business or alcohol license suspension.
How Childress Law Firm P.C. Helps
Childress Law Firm P.C. provides direct, attorney-led representation in sales and use tax matters at every stage, including audits, examinations, administrative appeals, penalty abatement requests, installment agreements, and collections defense. We also represent individuals facing trust fund or responsible person assessments and assist with resolving state tax liens, levies, and license enforcement actions.
Our goal is to address the problem strategically, reduce exposure where possible, and protect both business operations and personal assets.
A Strategic Approach to Sales Tax Resolution
Sales tax problems rarely resolve themselves, but they can often be controlled and reduced with a thoughtful and proactive approach. Whether you are facing an audit, an unexpected assessment, aggressive collection activity, or the risk of license suspension, early legal guidance is critical.
At Childress Law Firm P.C., we combine technical depth in state and local tax law with practical experience working directly with revenue departments to deliver clear, effective solutions.
Schedule a Consultation
If you have received a sales tax audit notice, assessment, collections demand, or license suspension warning, or if you are concerned about personal exposure as a responsible person, now is the time to act.
Contact Childress Law Firm P.C. to discuss your options and begin resolving your state sales tax matter with clarity and confidence.
