What Is Sales Tax Certificate Revocation in D.C.?

If your business doesn't pay sales tax, the D.C. Office of Tax and Revenue (OTR) can revoke your sales tax certificate. Losing your sales tax certificate prevents you from operating – the OTR knows this, and they use this tactic to effectively shut down businesses without going through the asset seizure process. 

However, once the OTR has taken away your license, that's just the beginning. The agency may continue to move forward with asset seizure, and under the Clean Hands Law, the District can revoke all of your other business licenses and permits. 

To get through this situation, you need a tax professional who's experienced with tax problems in Washington, D.C., and sales tax issues in particular. 

Key takeaways

• The OTR can take away your sales tax license if you don't pay or file sales tax.
• Under the Clean Hands Rule, you can lose business permits for any D.C. debt over $1000.
• Act promptly to protect your sales tax license, or you risk not being able to operate. 
• Making sales without a sales tax license is a crime. 
• TaxCure can help you find a D.C.-based sales tax attorney.

Risks of Sales Tax Certificate Revocation

The OTR can revoke your sales tax license at any point when you owe sales tax and do not make arrangements to pay it. Typically, this does not happen the first day or even month that you get behind, and you will get a warning before they revoke your licence. 

However, you need to be aware of the risks and actively to steps to protect your license. 

Sales tax license revocation is a risk if:

• You've repeatedly failed to file or pay D.C. sales tax.
• You've collected sales tax but not paid it.
• You've ignored collection notices.
• You didn't respond to audit requests and have ignored post-audit assessments.
• You have set up payment arrangements but failed to make payments.

The O.T.R. is willing to work with taxpayers – they understand that businesses get behind sometimes. But they rely on sales tax to fund critical operations, and they aren't going to allow a business to continue to operate if they believe that the business is unlikely to pay its tax obligations. 

Remember, sales tax is a trust fund tax – that means that it's collected from another entity (in this case, the customer), held in trust by you, and then paid to the government. The OTR and the IRS take trust fund taxes more seriously than other types of unpaid taxes. Other trust fund taxes include federal payroll taxes withheld from employees' paychecks and excise taxes.

Consequences of Sales Tax Certificate Revocation

If the OTR revokes your license, you will not be able to make taxable sales – making sales without a license can lead to fines of $50 per day, but may also subject you to criminal charges. 

In addition, you risk losing professional licenses, Certificates of Authority, and any other business licenses or permits issued by the District of Columbia. You can lose your right to do business in the District anytime you owe more than $1000 to any D.C. government entity. Note that some sources say $1000, while others say $100. Check with an attorney directly if you're worried about how much you owe to the District. 

Also, keep in mind that if you owe sales tax and haven't made payment arrangements, you may face unwanted collection actions, including:

• Tax liens – issued in the business's name and attach to all business assets.
• Garnishments – the OTR can garnish business bank accounts and/or payments from third parties (for example, rent payments, transfers from your payment processing software, vendor payments, etc). 
• Levies – the OTR may also seize your business property. 
• Personal assessment – the OTR can assess personal liability for unpaid sales tax or other trust fund taxes against business owners, and if that happens, they can file tax liens, garnish wages, and seize assets from you personally.

What Is the Clean Hands Act?

The Clean Hands Act allows the D.C. government to revoke any business permits or certificates if a business has unfiled returns or owes more than $1000 to the District of Columbia. 

This rule does not apply if you set up a payment plan - for instance, let's say you can't afford to pay your sales tax liability one month, and you owe $10,000, but you file the return, contact the OTR ASAP, and set up payments. In that case, you don't have to worry about the Clean Hands Act or loss of licenses/permits.

In contrast, say you owe an even lower amount, but you ignore the obligation. Let's say you owe $2000, you stop filing your sales tax returns, and you don't respond to OTR notices. In this case, the OTR will be much more likely to move forward with sales tax revocation. Then, once that happens, they'll alert other D.C. agencies under the terms of the Clean Hands Act, and you may end up losing all of your licenses.

How to Prevent or Resolve a Revocation

To protect your sales tax certificate and your other business licenses/permits:

• File all past-due returns.
• Pay outstanding sales tax liabilities. 
• If you can't afford to pay in full, contact the OTR to request a payment plan.
• Stay compliant on future sales tax returns and payments.
• If you're struggling financially, reach out to an accountant for help with budgeting and planning. 
• Make sure you're up to date on other business tax returns with the OTR – remember, any D.C. debts can put your business at risk. 

If you've lost your sales tax permit, you must stop all taxable sales immediately – for most businesses, that means no longer operating at all. Then, you need to work to rectify the situation as quickly as possible. Generally, there's only a limited amount of time to reinstate your license. 

Reinstating a Revoked Sales Tax Certificate

To reinstate your OTR sales tax permit, you should reach out to a tax professional for help – this is a critical development, and you may put your business at risk by navigating the situation on your own. Keep these tips in mind:

• Note the deadlines on the OTR notices about your sales tax revocation – missing deadlines can increase your risk of losing your permit and put you at risk of losing appeal opportunities. 
• Find a tax pro who's experienced with OTR processes – all states and the District of Columbia have unique tax codes and collection processes. For your own protection, you need a pro who's experienced with the rules in your area..
• Pay the taxes in full or set up a payment plan that satisfies the OTR. The OTR is typically willing to work with business taxpayers who are putting forth a good faith effort to get back into compliance. 
• Request to have your sales tax certificate reinstated – contact the OTR directly, or again, consider working with a professional for this process.
• Make a plan to stay compliant with future tax obligations – a tax professional can help you stay on track moving forward. 

Once your certificate has been reinstated, you're ready to go, and you can start operating again. However, if you've lost other licenses, you will need to apply to get them back – that can lose you a lot of time, and the sooner you take action, the better.

Certificate of Authority Revocation

Your sales tax permit is not the only license you may lose if you get behind on tax obligations. The government can also revoke your certificate of authority to operate in D.C. if your business is:

• Insolvent
• Hasn't paid a final judgment within 30 days, after the end of the appeal period, or after their appeal has been denied.
• Has violated District laws.
• Has refused to provide the requested books, papers, records, etc. to the Commissioner or tax examiners. 
• Has an officer who has refused to be examined under oath, related to the business's affairs. 
• Doesn't notify the Commissioner about updates to their charter within 30 days. 

Before revoking your certificate of authority, the Commissioner must give your company 30 days' notice, an explanation of the reason for the revocation, and the chance for a full hearing. However, if the commissioner believes that the business continuing to operate is hazardous to the public, they can suspend the certificate of authority without any advance warning. 

If you request a hearing and during the hearing, the Commissioner decides that the public interest is best served by you continuing to operate, the Commissioner can apply a penalty instead of revoking your license. The penalty is $10,000 per violation or $25,000 for intentional violations. 

Why Work With a Tax Professional

A tax professional can help you:

• Handle OTR communication.
• Help you decide which tax debts to prioritize and how.
• Amend incorrect tax returns.
• Appeal erroneous tax assessments.
• Request penalty abatement if applicable.
• Get you back into compliance.
• Reinstate your sales tax certificate and any other business licenses/permits.

A tax professional is an investment in solving your tax problems. They can help you protect your business and minimize the risk of financial harm. If you decide that you can no longer operate, a tax professional can help you close your tax accounts, avoid personal assessment for trust fund taxes (if possible), apply for settlements on OTR tax debts, and help you deal with collection actions or any other matters related to the OTR.

FAQs

Can I still operate if my DC sales tax certificate is revoked?

You can no longer sell taxable goods or services. If any aspect of your business is not related to taxable goods or services, you may continue to operate that. However, once your sales tax certificate has been revoked, you face a high risk of losing all other licenses and permits.

What is the Clean Hands Act, and how does it affect my business license?

The Clean Hands Act says that if a business owes more than $1000 to the District of Columbia, the District can revoke your business's licenses and permits. This creates a level of collusion between all of the District's entities. In other words, if you get behind on payments to the OTR, you risk losing licenses from the Department of Licensing and Consumer Protection (DLCP) and vice versa. 

How do I get my revoked certificate reinstated?

Pay in full or make payment arrangements that satisfy the OTR. Then, apply for reinstatement. 

What should I do if I collected sales tax but didn’t remit it?

Contact a tax professional to talk about the OTR's Voluntary Disclosure Program. That allows you to file past due returns and pay delinquent sales tax with reduced penalties and limited risk of criminal exposure. However, you must contact the OTR before they contact you or start an examination. You may have to meet other criteria as well. 

How long does it take to resolve a revoked sales tax certificate?

The timing can vary based on where you are in the process. Expect to spend a couple of weeks to several months resolving this process. 

Get Help With Sales Tax Certificates Now

Finding a legitimate tax resolution company used to be a struggle – but TaxCure makes it easy. Start your search on the page now – narrow down the options so that you only see pros with OTR experience. Then, use the filters to narrow down the results even further. 

Finally, review your options, look at their credentials, and read reviews from past clients. When you're ready, pick out a pro and reach out for help. It's time to put your tax trouble in the rear-view window.