I grew up in a small town in Nebraska, so I know from personal experience that small town people sometimes have the funniest sayings. However, I also know that those quirky sayings can contain a great deal of wisdom – and believe it or not - substantial tax savings.
One thing I remember my dad saying to me a lot was “if it was a snake, it woulda bit ya” (with a sufficient amount of country twang). In other words, whatever I was looking for was right in front of my face. And in a funny way, that applies to Texas Sales and Use Tax.
What if I told you that there is something on your sales and use tax return that could potentially save you thousands (and sometimes hundreds of thousands a year in remitted sales tax to Texas), even if it was tax that was collected and legitimately due to the State of Texas?
I currently have a client who remits over a million dollars a month to the State of Texas in collected sales tax. When I showed them this little “hidden” gem on their return, they were able to reduce their tax liability to the State of Texas by $150,000 annually. Section 424 of Texas Tax Code Chapter 151, provides that Texas taxpayers may pre-pay their tax liability and subsequently withhold 1.25% of the amount of the pre-payment- in addition to the timely filing discount allowed by Section 423 of the same tax code resulting in a total discount of 1.75%! Obviously, this option isn’t for every taxpayer. The resulting savings need to be enough to justify the effort required to calculate, track and file an additional return with the State every month. If the company is highly leveraged, it may not make sense to save 1.75% if you are leveraged at a higher percentage. Then of course, there’s the first month of pre-payment when the cash outlay to the State of Texas will likely be double what it normally is.
To take advantage of the prepayment option, you must file form 01-118 Texas Sales and Use Tax Prepayment Report (also available via WebFile) and pay the liability on or before the 15th of the month for which you are reporting - or the 15th of the second month of the quarter for which you are reporting. For example; if you are reporting for March 2018, the prepayment report must be filed and paid by March 15, 2018. If you are a quarterly filer, the report and payment are due by February 15, 2018 for the first quarter of 2018.
If the due date falls on a weekend or legal holiday, the next business day is the due date. Payments postmarked or transmitted after the due date will not be eligible for the additional prepayment discount. If you file the prepayment timely, but file the regular return for that period late, no discounts are allowed and penalty will be assessed on the tax due that exceeds the amount prepaid. Taxpayers who file using WebFile or pay through EDI or TexNet should keep dates in mind to ensure that the report is filed timely so that payments are processed timely. Filing the prepayment report on the due date will not be considered paid timely as bank processing timelines require payments to be submitted before 6:00 p.m. on the last banking business day BEFORE the due date.
For complete information regarding due dates and avoiding penalties, please reference http://www.window.state.tx.us/taxinfo/sales/webfile_sales.html.
How to estimate the appropriate amount to prepay:
The prepayment amount must be one of the following:
1) At least 90% of the total tax that will be due for the reporting period
2) Equal to or greater than the total tax that was due and paid in the same reporting period of the preceding year (not including discounts on previous year’s payment)
Filing your regular return:
When filing your regular Sales and Use Tax return due on the 20th of the month following the end of the reporting period (e.g. April 20, 2018 due date for March 2018 reporting period); you will enter the amount of your prepayment plus the allowable prepayment discount into line 9 of the return.
If there is additional tax due more than the pre-payment credit, you will pay that amount when filing the regular quarterly or monthly report. You are still entitled to the timely filing discount of .5% for the total tax due which includes any additional tax due over the prepayment credit.
If the amount of the prepayment exceeds the actual tax liability, the excess of the prepayment shall be credited against future tax liability or refunded to you.
Please contact us if you need assistance:
If you think this tax saving strategy might be an option for you but have questions, please feel free to reach out to us for additional information - or simply to talk through the process before you make a decision. You may reach me directly at 469.352.9620 (office) or 469.742.1159 (cell) - and my email address is email@example.com. You may also submit a direct message to me using the orange “Request a Consultation” link on my Firm Profile page.
Other recent “Texas (TX)” posts by Susan Goertz:
- BIG Sales & Use Tax Savings – Found in SMALL Town Wisdom
- Detrimental Reliance & Texas Sales-Use Tax: 4 Key Considerations
- Texas Construction Taxation: Sales & Use Tax Explained