Ignoring Sales Tax Notices From the State? It Could Cost You!

Got a tax notice from the state — should you ignore it or respond immediately?

In this episode, we break down exactly what to do when your business receives a sales tax notice from the state — from whether it's safe to ignore that first letter, to the real-world consequences of prolonged non-response (think: bank levies, frozen assets, and auditors showing up at your door). You'll learn how to be strategic about what information you share, why collaboration with experts beats going it alone, and the critical questions to ask before you ever respond.

📚 Related Resources:

• What Triggers a Sales Tax Audit? Understanding Your Risk Factors
• How to Prepare for a Sales Tax Audit
• Do I Need to Collect Sales Tax? A Complete Guide for Businesses
• What Is Nexus?
• Sales Tax Liability for Small Business

🎧 Related Episode:

• The Correspondence Spoke: Don't Ghost the State — "We always let people know no matter how accurate and how perfect your filings might be, you're still going to get notices from the state. So, you just don't want to ignore those." – Jason Parr

📖 Client Stories:

• See how Coburn's Supply Company reduced a $1M+ sales tax liability to just over $100K through expert audit defense.
• Learn how Acima achieved compliance across 240+ jurisdictions and supported a $1.65B acquisition.

💼 Need help with Sales Tax Management? With 30+ years of experience and 6,000+ clients served, The Sales Tax People guarantee accuracy, on-time filings, and audit protection — no long-term contracts required.

🗓️ Got a state tax notice sitting on your desk right now? Don't respond alone. Book a Demo for more customized help — let us be your first second opinion.

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Transcript

– Cautionary tale: Puerto Rico company ignores Texas sales tax until bank accounts are levied

SPEAKER_02 0:00

You're listening to the Sales Tax People Podcast.

SPEAKER_00 0:07

Today's episode is for those of you who have a letter from the State Tax Department sitting on your desk, unopened, collecting data, quietly getting more expensive by the day. The guys break down what actually happens when you ignore those notices and they give you tips on how to deal with an auditor if that happens to you. Sometimes it's attempting to throw your questions into chat GPT and call it a day, but they also talk through why that falls short when the stakes are real. And when it's time to get a human expert involved who actually knows how states operate. Whether you're starting at your first notice or your fifth, this one's for you.

SPEAKER_03 0:37

I I have a s I have a story to start with that uh we there was a client that they became a client actually. They were not a client at the point when the story began. They uh this was a company, the owners were based in Puerto Rico, and they lived there specifically to you know avoid some U.S. income taxes. They were not big fans of tax, which you know that a lot of folks share that same uh opinion or that sentiment. But unfortunately, these guys decided they were doing business in the US, lots of business, and unfortunately, they decided to uh ignore sales tax. And they had some advisors here in the U.S. enough so that they were registered in a couple states. Um, this particular company I remember uh was registered in Texas and had even started filing, but then for some reason just thought, yeah, we're making a change here. And and you know, they just started ignoring it. And, you know, letters started coming from Texas, uh, to the point of even like Texas said, we're gonna audit you. And they're like, ah, we don't live in the U.S., we don't need to worry about it. And when we when they became a client, it got so bad that uh Texas had actually um levied their bank accounts. That was like it got to that point before this particular company said, okay, this is serious now. Like the state can actually get a hold of us and can cause some problems.

SPEAKER_04 2:08

And uh they can get a hold of you and they can grab a hold of you as well. Yes.

SPEAKER_03 2:13

Yeah, they sunk their claws in for sure and said, Oh, hey, so you don't

– Question of the day: How should you respond to your first state tax notice?

SPEAKER_03 2:20

want to respond to us? We'll go ahead and levy some bank accounts and or a bank account specifically. So just just with that, the the question of the day is long before that happened, this company received a letter or a

– Why businesses ignore the first (and second) notice — and what happens next

SPEAKER_03 2:36

notice from the state. And the question is, what's a good way to respond, or what is what are some good ways to respond when you receive that first letter from the state?

SPEAKER_04 2:47

That's a great question. Paul, you want to go or you want me to go?

SPEAKER_01 2:50

Well, it's not uncommon when you first get a it's not uncommon when you first get a notice from the state to ignore the notice. Let me just say that. Because businesses oftentimes are in denial when they receive the letter in the mail. They think it's spam, they think it's junk mail, they think it's you know a fishing expedition, and they're like, I'm not interested in your fishing expedition, so let me just ignore that. Um and then it's it's not uncommon for the state to send a follow-up one uh a couple of months later. Oftentimes is when they're received, is a couple of months later. Hey, this is a second notice um to our request for information. And then yeah, if you don't respond to that one, it's not uncommon to get another one. It's um it's not uncommon for the state to reach out via Snell Mail. Uh it's surprising to me how many states still do business with USPS. And I don't see that going anywhere, quite honestly. Um so you can certainly ignore it, then the first one, the second one, but yeah, eventually um when the the state starts freezing your assets, levying your bank account, leaning your business, whatever it may be. We've even had um owners and officers that get a knock on the door at their home or at their office. Auditors just show up. Hey, looking for this business, are they here? Uh yeah, yeah, we're here. We well, you've been ignoring our outreach, and uh we we're we want to do an audit of your business. So um I personally am of the opinion of hey, let's uh let sleeping dogs lie, and I'm I'm I'm good with ignoring the first letter and maybe the first two letters. But guaranteed the state's not going anywhere when

– Why you should always open mail from a Department of Taxation or Comptroller

SPEAKER_01 4:37

they reach out to you um to to collect some information from you.

SPEAKER_04 4:42

Yeah, that's a solid answer. It's no different than the mail you get at home. Yeah. Right, for a business. And you get inundated with uh mail pieces and um you you might you may not even open it uh before you throw it away, right? To your point. You either want to avoid it, you think it might be phishing, might be spam, could be something else. But if if the uh sender is a department of taxation for a state in the US or you know, sometimes they're called departments of finance. Texas would be would come from the Texas Comptroller, so that might not be a familiar term to you, so you may not necessarily recognize it unless you open it and see what it's about. We also there's also multiple tax types, right? Uh we're oftentimes talking about sales tax, but Texas could send you a notice about um fuels tax or food and beverage tax or uh franchise tax or any myriad of taxes. Could be something that's related to you or not. It could be something you actually could ignore.

SPEAKER_01 5:50

Yeah.

SPEAKER_04 5:50

So to answer Danny's question, if you get something from a State Department of Taxation or a Comptroller, Department of Finance, open it. I'll give it a cursory

– "Collaboration builds confidence" — get a second opinion before responding

SPEAKER_04 6:02

review, see what they're asking about, and then ask somebody. Um, you know, I'll just lean on our favorite principle at the Sales Tax people, and that is collaboration builds confidence. So if you're unsure, share it with somebody, get their thoughts or opinion, and collaborate on it. Whatever decision you make, you'll have more confidence if you get uh some other people involved. And then, of course, we always want to be your first second opinion, and we're happy to give you an opinion. I can't tell you the number of calls over this is my 30th year in sales tax, and I I can't enumerate the number of calls that we've had with a client just saying, Hey, I just got this notice. What do you think we should do with this? Well, should I do it? And it just gives you a chance to review what the notice is asking about. And there are multiple times. I don't want to give a percentage, but I will. Maybe half. Maybe half the time we can say, Yeah, don't worry about that. Toss it.

SPEAKER_03 7:05

Um, but half the time 60% of the time we say that every time.

SPEAKER_04 7:11

Uh but the other half of the time we would say, Yeah, you we we should probably formulate a response. Um, because you know, they're beginning to dig on something that that might create a challenge or some exposure for you. So let's let's figure out what to do in those cases.

SPEAKER_01 7:32

And I would say before you even respond, you ought to understand what it means to respond and what it means to respond in certain

– Be strategic: understand the implications before you divulge information

SPEAKER_01 7:41

ways. Just because an auditor is asking for your depreciation of assets schedule, where you're of schedule depreciation, doesn't mean you're just gonna give it to them. I mean, you gotta understand, hey, if I provide this to so and so, what is that going to do? What are the pros, what are the cons? And so that's why I say initially, you may ignore the first one, but eventually you're gonna have to respond, but you ought to understand what it means to respond and and then what are the what are the benefits of

– "Once you divulge information, the cat's out of the bag"

SPEAKER_01 8:08

responding this way, what are the benefits of responding this way? And what are we risking? So there's there's truly a strategy to it rather than just blindly answering all the questions and then because once you divulge information, cats out of the bag, it's a little bit too late to ask for forgiveness, you know what I'm saying?

SPEAKER_04 8:26

Yeah. I mean, email you could send an email response. How do they do this in email? You send something you didn't you you send something that maybe you meant to send it, but now you want to retract it, and you can like send a follow-up email and you can recall it. Right? Everybody has seen the information, but you can still say, no, give me that back. Um that's not for your eyes or whatever like that. To redact that information. That's even harder to do snow mill, to get in touch with the state and say, hey, I sent you something. And there's even some sitcoms, I think, that have or movies that have focused on you know a piece of mail that's sitting on a desk somewhere that I've got to get to and retrieve before the people who it was sent to read it, right? You just don't have that ability, uh, to your point. Once you respond and divulge information, you can't recall that information.

SPEAKER_03 9:18

Um, if you do, that's gonna make the people want to look at it even more. Wait, hold on a second. What what did you send me? I I want to see what's why are you trying to recall it?

SPEAKER_04 9:27

Yeah. And that and that segues right into conversations around audits as well, right? You want to have, we've talked about this, you want to have a friendly uh relationship with the auditor. You don't you don't want to become friends with the

– Friendly but boundaried: how to handle auditor relationships

SPEAKER_04 9:44

auditor. They're different. Um but first off, you want to be careful what information you divulge to the auditor. You don't have, well, two things. You don't have to give them all the information before they ask for it. And you don't have to, you also don't have to give them all the information that they ask for. Um, it's important to understand what your rights and your remedies are and what your responsibility is to provide information when an auditor or a state through correspondence is asking for that information. Um, so it's good just to get uh some advice on uh how to respond. And to your point, Paul, I think which is the most important point that's been made, is what are the implications of this response or the ramifications that will occur when I respond based on how I respond, based on the information that I provide. What will the state do with that information and what does it mean on their end uh when I provide that to them? It's really smart advice there.

SPEAKER_03 10:39

Yeah, there's there's plenty of cases that uh, you know, I can't necessarily point to one right now, but we've had conversations and with companies, and I'm sure there's companies, plenty of companies out there that have had an experience where they get a letter of notice and they ignore it and they'd never hear from the state again. That I believe that's more common with, say,

– Sometimes you never hear back — but don't count on it

SPEAKER_03 11:03

like a state that's really sending out like boilerplate nexus questionnaires, right? And they'll blast them out to sometimes like thousands or tens of thousands of companies, and they're looking to just get the taxpayers or non-taxpayers that they believe should be taxpayers to respond to that and divulge that information. And again, like the laws are the laws, right? Like we're we're never gonna, you know, we're always going to talk about what the states require, what the laws stipulate, just like the the different parts of the sales tax legislation, the rules, and we'll always talk about options that people have. And you know, that this is the perfect example of getting a second opinion, you know, the first second opinion of, you know, because even if it's not you talking to someone else, sometimes it's you opening the letter and seeing it, and it's that opinion that you formulate yourself, right? That's your first opinion. Then you call us and you know, we become the the first second opinion. And and again, that this conversation is the perfect example of why it's important to talk to someone and collaborate. It's also the perfect example of um just the favorite answer in all of sales tax when you ask a question about sales tax, is it depends, right? It depends on the state. How should I respond to the first notice or the first letter? It depends on what that notice or letter says. And it depends on your history. Like it depends on you as a company, it depends on your risk tolerance. All these things are worth considering any time that you are going to be playing with the state.

SPEAKER_01 12:34

Yeah, and it's 2026. I mean, people are gonna take a picture of that thing and ask chat or Gemini or Claude or you name the AI tool. Hey, what's this notice and how should I respond? And that's totally fine. But uh yeah, we would strongly encourage you to talk to a human, an expert who's been in the field for a while.

SPEAKER_03 12:54

Actually, I was on a call with a a new client yesterday and

– "It depends" — the right response varies by state, notice type, and risk tolerance

SPEAKER_03 12:58

the very first call, and the guy was just first of all, just hilarious, like just very rough around the edges, but super smart, but just like dropping f-bombs during the call,

– The risks of using AI tools like ChatGPT for tax research (and the digital trail concern)

SPEAKER_03 13:10

and then he found out I'm in Utah. He's like, Oh, I can't talk like that anymore. I was like, I appreciate that, man. But it was it was really funny. Like there were like serious, like sales tax conversations, and then all of a sudden he says something or does something, and like all of us are just like, I at first I was just like, is this guy really like talking like this? Because I mean, there were like five people from his company, like they're big company. But anyways, I digress. He he was talking about just a research project. They got tons of taxability issues and questions and um nexus and like likely like a lot of exposure, unfortunately, um, because they just haven't ever had it buttoned up as they've grown a bunch. But he's like, I refuse to go talk to chat about this because I'm worried that it'll like leave a trail. Like there's gonna be information out there that you know the states can grab a hold of. And so I I actually appreciate his approach of like, yeah, I just you know have this conversation and work behind the scenes, of course, fixing things up.

SPEAKER_04 14:10

In every situation, you need to you you definitely I I'm not serious about a lot of things, right? One of the things we say about ourselves is uh we take sales tax very seriously, but we don't take ourselves that seriously, right? So you need you you you gotta be serious about some things, you gotta have some fun. But you know, if you can mix in a little conspiracy with that, with uh with tech, um, it just adds a lot of enjoyment to the overall conversation, right? So if you can just pull in truth, because you want truth, a little bit of conspiracy and a little bit of fun personality, you can have a great conversation, but you can also take care of some stuff like we do.

SPEAKER_03 14:49

Yeah, the thing about you know, even thinking down that line, right, or within that line of like conspiracy theories is at least you're asking questions at that point. And I another thing we love to say is questions are the answers. So ask those questions. You know, I mean, that's again the short answer to the question we start off with here of you know, what do I do when I first get a notice? Well, start asking questions before you do anything, especially you know, in response to the state email, phone call. Like go and start asking questions internally, get more information from your company, the facts that you know you hold within your company, and go ahead and talk to an advisor that is gonna be a good collaborative partner.

SPEAKER_04 15:30

Yeah, that's a perfect Danny segue into

– Questions are the answers: ask before you act

SPEAKER_04 15:33

the shout-out that I'm gonna give to the USPS. I I don't know why Paul's hating on the USPS. By the way, that was not a great segue, but we joke about the fact that we rarely have great segues. We call them great. Um, yeah, I don't know why, Paul, you're hating on the USPS. Good people who do hard work um and they do it in any type of weather, and they do it six days a week, and now they deliver packages every day of the week. Anyway, I was intertaining on them.

SPEAKER_01 16:02

I was just surprised the businesses still use the USPS in this digital world in which we live.

SPEAKER_04 16:07

Well, let me let me just tout the USPS for a moment. I'm gonna share with you a quote. Listen, a smile and

– USPS shoutout and the power of handwritten notes in a digital world

SPEAKER_04 16:17

an expression of kindness changes the world. Or at minimum, it changes yours. So let me just encourage everybody out there, handwrite the note, drop it in the mail. It will bless somebody's life.

SPEAKER_01 16:30

Support that. Shout out to our local USPS.

SPEAKER_04 16:34

By the stamp, by the stamp, support the people, send the note with an expression of kindness.

SPEAKER_03 16:39

But before you send the handwritten note back to the state in response to their letter, give us a call. Do that, do that.

SPEAKER_01 16:46

No doubt.

SPEAKER_02 16:52

Thanks for hanging out with us on the Sales Tax People podcast. If you want to talk about sales tax, or maybe you have an experience that goes along with something we talked about today, or maybe you just want to hear about how Paul's day is going, make sure you send us an email to podcast at sales dot tax or you can text us at nine four nine three five five zero nine eighty. See y'all again soon.