Indiana Sales Tax Nonpayment Risk Checklist
Introduction
Sales tax nonpayment occurs when collected Indiana sales tax is not remitted to the Indiana
Department of Revenue by the required deadline. Indiana law treats sales tax on taxable transactions as trust funds tied to tangible personal property and certain services so that unpaid taxes can trigger quick tax enforcement.
When late payment or nonpayment occurs, the Department of Revenue can assess penalties, interest, and collection costs through its tax collections process. A prompt response preserves more options for tax compliance, including the option to appeal an assessment or enter into approved payment arrangements.
What This Issue Means
Sales tax nonpayment means sales tax collected from customers, or sales tax that should have been collected, was not paid with the required tax return by the due date. This applies to retail merchants, remote retailers, marketplace sellers, and other businesses that have sales tax nexus or sales tax registration obligations in Indiana.
Nonpayment often involves use tax issues, especially when purchases of taxable tangible personal property were not taxed at checkout. For some businesses, the risk begins with economic nexus rules following South Dakota v. Wayfair, which expanded the circumstances under which remote retailers may be required to register and remit.
Why the State Issued This or Requires This
Indiana requires sellers to collect and remit Indiana sales tax to support state revenue and maintain consistent tax policies across industries. The State revenue department monitors filing and payment activity through account records, and a missed return or unpaid balance can trigger automated notices.
Nonpayment may be identified through missing filings, returned payments, or data matching that indicates taxable sales activity. For specific industries, extra attention is required when excise tax programs overlap, such as electronic cigarette retailers, prepaid wireless telecommunications service sellers, alcoholic beverage tax collectors, fireworks retailers, or waste tire management fee collectors.
What Happens If This Is Ignored
If nonpayment is ignored, the Indiana Department of Revenue may issue a Notice of Proposed
Assessment, followed by a Demand for Payment that moves the account into formal tax collections. Continued nonresponse can result in a tax warrant that serves as a lien and supports enforcement actions, such as bank levies or operational restrictions.
What This Does Not Mean
Nonpayment of sales tax does not automatically mean criminal penalties at the first notice stage, since most cases begin as civil proceedings. It also does not mean property has already been seized or that a lien has been filed without prior notice and procedural steps.
Nonpayment also does not automatically involve federal agencies, because state sales tax is separate from federal taxes and income tax returns filed with the Internal Revenue Service.
Even when withholding tax or payroll accounts exist, Indiana sales tax enforcement is administered by the Indiana Department of Revenue, not the IRS.
Checklist: What To Do After Identifying Sales Tax
Nonpayment
Step 1: Locate the notice and confirm the tax period
Review the notice for the tax period, balance due, and the response or payment deadline.
Gather prior correspondence to verify whether the issue is a missed tax return, a payment shortfall, or both.
Step 2: Confirm sales tax registration and nexus exposure
Check the account to confirm sales tax registration and whether sales tax nexus applies for the period. If remote sales are involved, review economic nexus rules after South Dakota v. Wayfair to confirm whether registration obligations were triggered.
Step 3: Reconcile taxable sales and use tax items
Use sales records to confirm taxable transactions, including prepared food and taxable tangible personal property. Review purchases that may require use tax to reduce future unpaid taxes from vendor under-collection.
Step 4: Verify the balance and notice type in INTIME
Use the INTIME portal to confirm the current balance, penalties, and interest, and identify whether the notice is an assessment or a demand notice. If details do not match internal records, verify the taxpayer information on file.
Step 5: Request a clear account history and assessment support
Request an account transcript to review filing history, payments, and adjustments. If the balance is based on estimated billing or an assessment manual method, gather records that support corrected calculations.
Step 6: Decide whether to pay, dispute, or appeal
If the balance is correct and payable, arrange payment quickly to limit late payment exposure and interest. If the balance is disputed, prepare an assessment appeal by the deadline with clear documentation and a short explanation.
Step 7: Address missing returns and correct reporting
File any missing returns, even when the period is a zero return, since failure to file can keep the account in enforcement status. Align reporting with internal books to reduce mismatches in future tax compliance reviews.
Step 8: Ask about payment arrangements when full payment is not possible
Contact the Department of Revenue to ask whether short-term arrangements are available and what information is required. Propose a realistic schedule supported by basic cash flow documentation.
Step 9: Check for related tax accounts and industry rules
Review related accounts to confirm the issue is not spreading into withholding tax, corporate income tax, pass-through entity tax, or specialized excise tax programs. If exemptions apply, such as a manufacturing exemption or a partial exemption certificate, gather support to avoid overstatement.
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
Step 10: Confirm posting, monitor status, and prevent recurrence
Monitor the account in INTIME to confirm payments posted to the correct period and tax type.
Add controls to prevent recurrence, such as calendar tracking, a review step before filing, and a transparent handoff with any tax preparer.
What Happens After This Is Completed
After returns are filed and payments are posted, the Indiana Department of Revenue updates the account. It may issue a revised balance or confirmation notice, with ongoing compliance required for any approved arrangement. If an assessment appeal is filed, the Department of
Revenue reviews the submission and issues a written decision, with timing depending on complexity and workload.
Common Mistakes To Avoid
Missing deadlines, filing nothing while paying, or assuming penalties will be removed automatically can push the case into faster tax enforcement and higher balances. Confusing
Indiana sales tax with federal taxes, or failing to confirm posting in INTIME, can result in payments being misapplied and keep the account in tax collections.
Frequently Asked Questions
How does the Indiana Department of Revenue identify sales tax nonpayment?
The Department of Revenue compares filed tax return data to expected activity and flags accounts with missing filings or unpaid balances. Nonpayment can also be identified through reviews tied to remote retailers, marketplace data, or account reconciliation activity.
Can a business dispute the amount owed through an assessment appeal?
A disputed assessment can usually be challenged by filing an assessment appeal within the notice deadline and providing supporting records. The appeal should focus on documented taxable sales, exemptions, payment proof, and corrected calculations.
Can nonpayment lead to liens or collection actions?
If notices are ignored, the state may file a tax warrant that can support lien activity and expanded tax enforcement. Collection tools can include bank levies or other tax collection measures based on account history and response patterns.
Do economic nexus rules affect remote sellers in Indiana?
Economic nexus rules can require remote retailers to register and remit Indiana sales tax even if they have no physical presence in Indiana. Many sellers evaluate nexus exposure using the
Wayfair framework and confirm obligations through Indiana guidance and account records.
Does this involve the Internal Revenue Service or federal taxes?
Indiana sales tax enforcement is separate from the Internal Revenue Service and does not arise from federal income tax returns. Federal taxes and IRS processes are distinct matters, even when the same business manages both compliance tracks.
What should be done if the notice appears incorrect?
The Indiana Department of Revenue should be contacted promptly, and supporting records should be submitted to show where the notice does not match the account history.
Documentation should include sales reports, payment confirmations, and any exemption support, such as a manufacturing exemption or a partial exemption certificate.
Closing
Sales tax nonpayment is usually manageable when the issue is found early, the correct tax period is confirmed, and records support a clear response through INTIME, including both sales tax and use tax exposure. When sales tax nexus changes due to remote sales or growth, regular reviews and accurate reporting help retail merchants and remote sellers avoid repeat late payment issues and new unpaid taxes.
Facing State Enforcement Action?
If you’ve received a notice related to sales tax or payroll tax enforcement, and aren’t sure how to respond, our team can help you understand your options and next steps.
We help with:
20+ years experience • Same-day reviews available
