When the economy slows down, more small businesses fall behind on paying sales tax and payroll withholding taxes. These are called “trust taxes,” because businesses collect them from other people (customers or employees), and are supposed to promptly send them to the State. The N.C. Department of Revenue has a program called the Small Business Counseling Program that may be able to help. It gives small businesses a break on penalties and fees on these taxes if they will follow a repayment schedule and participate in free, confidential business counseling. Businesses are eligible if they have 200 or fewer employees, and if they haven’t been the subject of criminal investigation or prosecution for being behind on these kinds of taxes.
The Department recognizes that when a business falls behind on sending in taxes it collected from someone else, it is often a symptom of bigger management or financial problems. It means the business is using these funds (which it held in trust to be paid to the State) for other financial obligations (utilities, payroll, loan payments, etc.) which it cannot meet, like robbing Peter to pay Paul. When the Department waived penalties and fees in the past without requiring business counseling, they would see the same businesses falling behind on these taxes again and again.
For this program, the Department sets up a payment plan over 6 to 24 months, depending on the amount due, and waives hefty penalties and fees. The Department requires paying the taxes owed plus 5% interest. In return, the business must stay current on its new tax obligations, follow the payment plan on delinquent taxes, and participate in one-on-one, free, confidential business counseling with either the Small Business Technology Development Center (SBTDC) or the N.C. Small Business Center Network (SBCN). The counselors do not share any information about the business with the Department; they do share whether the business participates.
SBTDC is a business advisory service of the University of North Carolina system, with offices near many member schools. Nearby offices are in Chapel Hill and Durham. SBCN is a business counseling service of the NC Community College System, which is available in almost every county in the state. Both SBTDC and SBCN are experienced in areas ranging from financial analysis (including cash-flow), marketing, operations, strategy, and performance. I have served for years on the Regional Advisory Board for the SBTDC’s Chapel Hill office. Speaking from experience, SBTDC is an exceptional resource for all small business owners and managers, whether the business is having problems or wants to build on current success. Both SBTDC and SBCN provide counseling services for small businesses generally, in addition to the Department of Revenue program.
What happens if the business doesn’t comply with all of the program’s requirements? The Department will reinstate penalties and fees, which are quite steep.
For more information, call the NC Department of Revenue at 1-877-252-4549 or visit www.dornc.com. To learn more about SBTDC, go to www.sbtdc.org, and for SBCN, go to http://sbcn.nc.gov. The Department hopes to have a win-win program where the State collects delinquent taxes, and participating businesses save money on settling up their tax debt while achieving better financial health to prevent these problems from arising again in the future.
Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough, NC. She can be reached at 919-732-7300 or firstname.lastname@example.org.
This article was last updated in January 2020.