The Real Risks of
DIY Sales Tax Filing
- Author : Alice Mensch
- Date : May 4, 2025
- Category : Sales Tax Compliance
- Estimated Reading Time : 7 minutes
Introduction
DIY Sales Tax Filing:
What Business Owners Are Getting Wrong
Sales tax compliance is one of the most misunderstood aspects of running a business—especially for those selling online or across state lines. Filing your own returns might seem like a smart way to save money. However, even small mistakes can create expensive problems down the road. In many cases, these errors aren’t obvious until a notice shows up from a state department of revenue.
Business owners often assume that sales tax is a simple matter of collecting a set percentage and sending it in. But the reality is far more complicated. Sales tax laws vary dramatically between states, and even within states. In addition, they change frequently. Failing to understand these nuances doesn’t just lead to clerical errors—it can expose a business to audits, back taxes, penalties, and a significant drain on cash flow.
Common Risks of DIY Sales Tax Filing
Misunderstood Nexus
One of the most significant changes in recent years came from the 2018 Supreme Court decision in South Dakota v. Wayfair, which established the concept of economic nexus. As a result, businesses no longer need a physical presence to trigger tax obligations in a state. Instead, exceeding a certain number of transactions or a sales threshold can be enough.
Many DIY filers don’t track this or are unaware they’ve crossed a threshold. Consequently, this often leads to:
- Unregistered tax obligations in multiple states
- Late or missing filings
- Accumulated penalties and interest
Platform Assumptions
Ecommerce platforms such as Shopify, Etsy, and Amazon do offer some level of sales tax automation. However, they do not necessarily cover every aspect of a business’s filing requirements. Assuming that a platform “handles everything” can create major compliance gaps. Therefore, it’s essential to understand exactly what your platform does—and does not—cover. For example:
- A platform may collect and remit in some states but not others
- Multi-channel sellers might assume all sales are covered when only marketplace sales are
- Businesses selling on their own websites or through POS systems may still be responsible for collecting and remitting
Product and Shipping Taxability Errors
Another area where DIY sales tax filing falls short is in determining what is taxable. States tax products and services differently. Moreover, shipping is taxed in some states and exempt in others. Digital goods, bundled services, and mixed transactions can also complicate matters. Clearly, assuming one tax rule applies everywhere is risky.
Some common mistakes include:
Some common mistakes include:
- Not charging tax on shipping when required
- Applying incorrect tax rates to certain product categories
- Over-collecting tax on exempt items, which can lead to customer complaints and the need to file amended returns
Filing Frequency Confusion
Most states assign a filing frequency based on a business’s sales volume in that state. As a result, businesses may be required to file monthly, quarterly, or annually. These frequencies can change and are not consistent across jurisdictions. Thus, maintaining an accurate filing calendar is crucial.
When DIY filers fail to track or update filing requirements, they risk:
When DIY filers fail to track or update filing requirements, they risk:
- Filing late or missing deadlines
- Being unaware that they should have been filing more often
- Triggering penalties for non-compliance
Data Entry and Software Reliance
Automated accounting software can give business owners a false sense of security. These tools depend on accurate inputs and manual configurations, which many business owners skip or misunderstand. Consequently, relying solely on automation can be a costly mistake.
Some issues we commonly see include:
- Incorrectly mapped products or services
- Failure to update sales tax tables
- Overreliance on generic defaults without understanding their limitations
What Business Owners Should Be Doing Instead
Importantly, this isn’t about bad intentions—it’s about the complexity of the system and the limited time most business owners have. DIY sales tax filing is appealing because it seems fast, cheap, and simple. But in reality, many business owners don’t realize what they don’t know. They often assume that their software tools handle all compliance requirements, underestimate how quickly their business has grown or expanded across jurisdictions, and fail to keep up with ongoing changes in sales tax laws.
Rather than relying on assumptions or software alone, business owners should take time to:
- Identify all states where they have sales tax nexus
- Register properly in each state
- Understand the taxability of their products, services, and shipping methods
- Keep a calendar of filing due dates per state
- Review how platforms like Shopify or Amazon are managing (or not managing) their obligations
- Periodically reassess their compliance status as sales grow or business models change
Working with a professional isn’t just about filing returns—it’s about strategic oversight. That said, even without hiring someone, asking better questions and performing regular internal reviews can help avoid major risks.
“Sales tax compliance isn’t just about filing returns—it’s about knowing where your business is vulnerable before the penalties hit. It means understanding nexus, platform limitations, and changing rules so you can stay ahead, not just keep up.”
Final Thought
Sales tax compliance is no longer something small business owners can afford to treat casually. Indeed, the risk landscape has changed, and the rules are too complex to rely on instinct, default settings, or outdated assumptions.
DIY filing may save money in the short term. Nevertheless, the long-term costs can be steep. Business owners who stay informed, proactive, and willing to reassess their approach are in the best position to grow sustainably and avoid compliance surprises.
Ultimately, that’s worth much more than a saved filing fee.
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