A sales tax refund claim provides valuable recourse for businesses that overpay on their assessments in a state for one reason or another. While the process for filing and obtaining your business’s refund can vary from state to state, you will likely have to navigate one important hurdle in your state’s tax department – the filing deadline.
Most states will limit the time you have to file, appeal, or otherwise collect your entitled sales tax refund claim. Failure to follow these deadlines can financially hurt businesses as they leave revenue on the table. Below, we review some cases that show how applying these deadlines can be more complex than you think because of entanglement with other sales tax audit and assessment procedures. These cases also show the propensity of state tax departments to hide behind filing deadlines to avoid paying out refund claims that businesses otherwise have a right to collect.
Examples of Sales Tax Refund Claim Deadline Issues Across a Few States
Common sales tax refund claim issues arise for taxpayers when trying to comply with statutory deadlines amidst audits, the terms of extension agreements, and offsetting your refund claim with liability for underpayment. Check out how these issues can lead to mixed results and lengthy appeal battles for taxpayers who simply wanted to collect overpayments of tax.
New Jersey: Solvay Specialty Polymers v. Division of Taxation (January 19, 2022)
New Jersey allows businesses to claim a refund for their amount of overpaid sales tax using Form A-3730, which requires an explanation of the nature of your claim as well as the submission of supporting documents. Taxpayers generally have four years from the date of the transaction where sales tax was erroneously collected or paid to seek a refund or credit. See N.J.S.A 54:32B-20(a). However, another common wrinkle for taxpayers is when a refund claim runs parallel to a sales tax audit or assessment.
Taxpayers must be cautious of state tax departments that attempt to wrongfully offset refunds through assessments in other years. For example, New Jersey’s Division of Taxation in Solvay attempted to skirt direct payment of a refund to the taxpayer by offsetting the amount from “improperly” taken use tax credits taken in other years. See pages 21-23 of the court opinion. The problem, according to the Tax Court of New Jersey on a summary judgment ruling, was that the offset was effectively an assessment of tax and violated N.J.S.A 54:32B-27, which prohibits assessments made after four years from the date of filing a return. The court’s decision allowed the taxpayer’s refund claim to continue as it related to sales and use tax exemptions for property used in a manufacturing process.
Tennessee: Zimmer U.S., Inc. v. David Gerregano (July 19, 2021)
As shown in the New Jersey case, your sales tax refund claims sometimes occur in the context of other sales tax issues, whether that be an audit or an assessment appeal. As a part of resolving those processes, you may engage in extension agreements or other understandings with your tax department. While these agreements are common, they can create problems for knowing your filing deadlines.
For example, the Tennessee Chancery Court in Zimmer had to address whether the scope of an extension agreement also extended the taxpayer’s deadline for appealing a sales tax refund claim. Typically, Tennessee businesses have one year to challenge a denied claim for a sales tax refund.
While the taxpayer’s agreement with the Tennessee Department of Revenue extended the period to assess sales tax or file a refund claim, the court observed that it did not also extend the one-year period for filing a claim to appeal a denied refund claim. The takeaway for taxpayers is the importance of having a sales tax professional available to review and consult on any agreements made with a state or local tax department.
Utah: Appeal No. 20-1426 (July 19, 2021)
A taxpayer, in Appeal No. 20-1426, also faced filing deadline challenges from the Auditing Division of the Utah State Tax Commission during an attempt to recover a refund related to the sales tax paid on exempt purchases as part of an offset with other taxable purchases. Specifically, exemptions for advertising materials in the form of newspaper inserts uncovered during an audit for the period January 1, 2012, to January 31, 2017. The Auditing Division issued a final audit report on November 6, 2019. After the audit, the taxpayer made a payment on October 29, 2019, and filed a refund claim on December 27, 2019.
The Auditing Division denied the taxpayer’s refund claim made on December 27, 2019, arguing it was outside the two-year filing deadline from when “the date tax was paid” under § 59-1-1409(8)(a)(ii). Their reasoning was that the tax paid on October 29, 2019, was for different purchases than the ones for which a refund was sought. In other words, the argument was the taxpayer had two years to seek a refund from when it actually paid tax on the advertising materials. Luckily, the Utah State Tax Commissioners who heard the appeal disagreed with the Auditing Division’s position because Utah’s sales tax regulations allow taxpayers to offset overpayments and underpayments of tax under R865-19S-4(5).
How Do I Know If I’m Eligible for a Sales Tax Refund Claim?
Sales tax refund claims provide businesses with a valuable process for reconciling overpayments, which, in turn, can improve your profit margins. However, identifying these refund opportunities can be difficult without the guidance of a professional experienced in state sales tax. The following could be a chance to review your or your client’s business ability to file a refund claim:
- You are doing business in a new locality within a state and may have adjustments based on applicable local rates.
- You have new purchases or sales that may be exempt from sales tax (e.g., manufacturing, advertising, etc.).
- You have tax-paid purchases that later become tax-exempt because of sales for resale or sales made online to a customer in another state.
- You are facing an audit or just received a tax assessment notice following an audit.
How Can I Avoid Missing My Sales Tax Refund Claim and Appeal Deadlines?
The takeaway from the above case reviews is that filing deadlines can be a very real obstacle for taxpayers to overcome when trying to recover a sales tax refund. The simple method for limiting the risk of missing a sales tax refund claim or appeal deadline is to review important dates with a sales tax consultant. In many cases, your period for filling a refund claim or an appeal of a denied claim could depend on when certain tax events happen, including:
- The date you file a sales tax return or remit sales tax (usually done on a monthly, quarterly, or annual frequency).
- The date you receive a final audit report.
- When the department of revenue issues a notice of sales tax assessment.
- When the department of revenue issues a denial of a sales tax refund claim.
- Extensions made through an agreement with the department of revenue.
Whenever you receive formal notices or engage in a routine filing with your taxing authority, you should confirm related filing deadlines for appeals or refunds. Additionally, review any offered settlements or agreements from your tax department with a sales tax consultant to understand how it may impact your right to a refund claim.
With questions about sales tax refund claims, schedule a consultation with Sales Tax Helper today.