Unfiled sales tax returns never start the clock

A sales tax return you never filed never starts the assessment clock. In most states that clock runs from the filing of a return, so a company that never registered carries exposure reaching back years further than any other tax line on a diligence list. Some states cap that reach. Several do not. It is repairable before a buyer asks.

Federal tax works on the same principle. The assessment period runs from the filing of a return, and where no return was filed the tax can be assessed at any time. The difference is practical, not legal. You filed your income and payroll returns, so those clocks started and most have run out. In a state where you never registered, nothing started. Sales tax positions here are stated as of September 2026.

Why does unfiled sales tax exposure reach back further than any other tax item?

Sales tax assessment limits run from the filing of a return, so no return means no start. New York bars assessment more than three years after a return is filed, except for a willfully false or fraudulent return, and imposes no bar where no return was filed. Texas may assess at any time. California allows eight years.

Read those rules together and the pattern is clear. The protection attaches to the return, not to the passage of time. A registered company that files monthly and makes a mistake has a short, closing window. An unregistered company has a window that never opened. Whether it ever closes depends on the state: Texas and New York can reach back indefinitely, California stops at eight years. Check each state rather than assuming either extreme.

The practical consequence is arithmetic. If your company crossed a state’s threshold in 2019 and never registered, the exposed periods in an open-ended state are 2019 through today, plus interest from each original due date, plus failure-to-file and failure-to-pay penalties, which in many states stack. Nothing has fallen off the back end.

Law: N.Y. Tax Law 1147(b); Tex. Tax Code 111.201, 111.205; Cal. Rev. & Tax. Code 6487.

How do I know which states my company has sales tax nexus in?

Nexus is the connection that lets a state require a seller to collect its tax. South Dakota v. Wayfair overruled the physical presence rule in 2018. The statute before it reached sellers delivering more than $100,000 of goods or services into the state, or making 200 or more separate transactions a year. The Court remanded rather than sustaining it.

Law: South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).

Two things follow that owners routinely get wrong. First, thresholds differ by state and have been amended repeatedly since 2018. Some use higher dollar figures. Several have dropped the transaction count entirely. Check each state’s threshold as of the month you are testing, not the figure you read about in 2018.

Second, Wayfair added a way to have nexus. It did not remove the old one. Physical presence still creates nexus, and it did so long before 2018. In most states, inventory sitting in a third-party fulfillment warehouse is physical presence, and so is a salesperson working a territory. A crew traveling in to install or service what you sold generally is as well, though some states apply de minimis rules to occasional visits. So the exposure period is not automatically the Wayfair era. It can start the year you first put a pallet or a person there.

I ask for the sales-by-ship-to-state file and the list of state registrations before I read the letter of intent.

Is what my company sells even taxable in the states where it has nexus?

Crossing a threshold does not create a liability by itself. It creates a collection duty only for receipts the state actually taxes. Taxability of software delivered as a service, of digital goods, and of labor such as installation, maintenance, and repair is defined state by state. The same invoice can be taxable in one state and exempt across the border.

That is why a nexus study is two questions per state, not one. Question one is whether the company crossed the threshold, and in which year. Question two is whether the revenue that took it over the threshold is in the state’s tax base at all. A services company can trip a threshold on gross receipts and still owe nothing.

Do the second question by revenue line and by year. Subscription software, license fees, implementation labor, hosting, training, hardware resale, and freight charges are separate answers, not one answer. Ask your accountant which sales channels already had tax collected and remitted at the point of sale, so you are not quantifying exposure on receipts somebody else already paid over.

How does unpaid sales tax become the buyer’s problem in an asset sale, and then mine again?

Successor liability lets a state assess a buyer of business assets for the seller’s unpaid sales tax. California requires a purchaser to withhold enough of the price to cover the amount due until the seller produces a receipt or a certificate showing nothing is owed, and makes a purchaser who fails to withhold liable up to the purchase price.

Law: Cal. Rev. & Tax. Code 6811, 6812; N.Y. Tax Law 1141(c).

Here is the mechanism that catches owners who assumed an asset sale leaves liabilities behind. New York’s bulk sale rule requires the purchaser of business assets sold outside the ordinary course to notify the tax department at least ten days before taking possession or paying. A purchaser that gives notice and holds the funds until the state responds caps its exposure and learns what the state says is owed. A purchaser that skips the notice can be assessed for the seller’s tax, subject to a ceiling tied to the price or value of the assets.

Buyer’s counsel who knows the rule gives the notice. Plan on it being given, even if an unrepresented buyer might miss it. For you that means three things. The state is told a sale is happening. Money is held back until the account is resolved. And the number the state produces comes out of your proceeds, not a number you negotiated.

The bulk sale notice is the buyer’s fire escape. It is also how the state learns your name, at least ten days before you were planning to close.

What is a tax clearance certificate, and what if I cannot get one?

A tax clearance certificate is a state’s written confirmation that a taxpayer’s account is settled. Buyer’s counsel asks for one where the company is registered, and a careful buyer asks about states where it should have been. California’s statute contemplates that document: a receipt showing payment, or a certificate stating nothing is due.

A clearance sweep across every state a company touches is more common in larger transactions than in a deal this size, where the request usually covers the home state and wherever you hold registrations. Do not take comfort in that. The states you left out produce the diligence question you cannot answer, and registering mid-deal announces the gap in the worst possible week.

Processing time is the other constraint. Clearance requests run on the state’s calendar, not on your closing date, and the certificate generally issues only after the account is current. The answer is sequence. Resolve the unregistered states before the clearance question is asked, so that when it is asked the company is registered, current, and clearable.

What is a voluntary disclosure agreement, and what disqualifies my company from one?

A voluntary disclosure agreement is a negotiated fix with a state. The company comes forward, registers, files and pays for a limited lookback period, and the state agrees to waive penalties and the earlier periods. Terms are discretionary and vary. California’s program can cut the billing period from eight years to three for sellers that qualify.

Law: Cal. Rev. & Tax. Code 6487.05.

Eligibility is conditional everywhere. California’s program is aimed at sellers that never registered, were not contacted by the department, and failed to file for reasonable cause rather than negligence; penalty relief there is permitted, not guaranteed. The Multistate Tax Commission runs a program that lets one application reach many states, still on each state’s terms.

A typical agreement asks for the following, and states vary on each term:

• Registration going forward and collection from a stated date.
• Returns or a schedule of liability for a fixed lookback, commonly three or four years.
• Payment of tax and interest for those periods; interest is rarely waived.
• Waiver of penalties, which on multi-year unfiled exposure is often the largest single line.
• In most states, an initial approach made without naming the company, which is why the sequence matters.

Two things take the option away. The first is prior contact. Under the Multistate Tax Commission’s published procedures, contact between the state and the taxpayer about a tax type disqualifies the taxpayer for that tax type, and contact includes filing a return, paying the tax, or receiving an inquiry from the state. A nexus questionnaire in the mail is not junk mail. It is the end of your cheapest option there.

The second is tax you collected and did not remit. States carve it out. Alabama extends the lookback to include all periods in which tax was collected and not remitted. Missouri does the same where collected tax was not reported. The limited lookback is relief for tax you never charged, not for money your customers already handed you.

Why does sales tax I collected but never remitted follow me personally after closing?

Sales tax collected from customers is held in trust for the state, not earned as company revenue. New York makes every person required to collect the tax personally liable for it. California imposes personal liability on officers, members, managers, and partners who willfully fail to pay when a business terminates, dissolves, or is abandoned.

Law: N.Y. Tax Law 1133(a); Cal. Rev. & Tax. Code 6829.

New York allows certain passive minority owners to apply for relief, but that is a narrow door. Follow the rule through a normal asset deal. You sell the assets. The selling entity distributes the proceeds and dissolves. The trust fund exposure does not dissolve with it, and the state does not need to sue a defunct company. It can assess a responsible person. In California, winding up is the event the statute is built around, not the escape from it.

Your purchase agreement does not change that. An indemnity is a contract between you and the buyer, and it matters between the two of you. A revenue department is not a party to it, is not bound by its survival period, and is not bound by its cap. I separate tax collected from tax never charged before anyone approaches a state, because the two numbers get completely different treatment.

An indemnity allocates money between you and the buyer. It does not tell a state revenue department whose name goes on the assessment.

What should I do about sales tax exposure in the next thirty days?

A multistate nexus study is the first step, and its value is a function of timing. Commissioned early, it produces a quantified number and a repair plan. Commissioned after a letter of intent, it produces a disclosure item and, usually, money held back from your proceeds. The work itself is identical. The leverage is not.

Concretely, in this order:

• Pull gross receipts by ship-to state and by revenue line for the full period since you first had people, property, or meaningful sales in a state.
• Build a physical presence timeline: inventory locations, remote employees, contractors, installers, trade shows, by year.
• For each state that crosses a threshold, answer the taxability question by product and service line before you compute anything.
• Segregate, on its own schedule, every dollar of tax the company actually collected. That schedule drives the personal exposure and does not get lookback relief.
• Check the mail and the registered agent file for state notices and nexus questionnaires. Prior contact changes which states are still fixable.
• Start voluntary disclosure in the highest-exposure states first, and allow for the agreements to be signed and paid before diligence requests go out.
• Keep registrations, filings, and agreements in one file you can hand over, so the clearance request is a formality.

Do this and the sales tax question in diligence becomes a folder rather than a negotiation. Skip it and buyer’s counsel asks a question you cannot answer, the bulk sale notice tells the state before you do, and part of your price sits idle while a revenue department decides how far back to go. In an unregistered state, that decision is the state’s, and in more than a few there is no year it has to stop at.