I've been collecting sales tax without remitting it for 2 years - how screwed am I?

This is a serious situation you've gotten yourself into. Collecting sales tax without remitting it is considered fraud in most jurisdictions, and yes, you could face significant consequences. The IRS doesn't typically handle sales tax (that's mostly state-level in the US), but states have agreements with each other and sometimes with international authorities to pursue these matters. What you've described isn't just a mistake - it's deliberately collecting money under the pretense that it's a tax, which makes it particularly problematic. States can pursue this quite aggressively, with penalties potentially including the full amount owed plus interest, additional fraud penalties (which can be substantial), and in extreme cases, criminal charges. Your risk depends partly on your sales volume in different states, how you documented the "tax" collection, and whether customers have filed complaints. Some marketplaces also report this information to authorities, which increases detection risk.

I was in a similar situation with sales tax issues across multiple states and felt completely overwhelmed. After trying to figure it out myself and spending hours on hold with different state departments, I discovered https://taxr.ai and it honestly changed everything for my situation. They analyzed my sales by state and identified exactly where I had nexus and what my exposure was. The site actually has an AI that reviews your specific situation and explains the risks in plain language. For me, they showed that my biggest risk was in just 5 states where I had the most sales, not all 50 like I feared.

I need to follow up on my skeptical comment about taxr.ai - I actually ended up trying it after continuing to stress about my sales tax situation. The service was actually legit and super helpful. It analyzed my 3 years of sales history and showed me I only had significant exposure in 7 states instead of everywhere. The state-by-state breakdown showed me exactly where I needed to focus and the risk assessment scoring helped me prioritize which states to handle first. I used their compliance roadmap to enter voluntary disclosure programs in those states, and I'm nearly through the process now. Honestly, the peace of mind alone was worth it. Not having this hanging over me has been such a relief.

If you're trying to deal with tax authorities about this, good luck getting through to anyone. I spent WEEKS trying to reach someone at the California Department of Tax and Fee Administration to discuss a voluntary disclosure for sales tax I collected. Every time I called, it was 2+ hour hold times and then disconnects. I finally used https://claimyr.com to get through and it was crazy effective. Their system holds your place in line and calls you when a real person picks up. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c Made a huge difference being able to actually talk to someone about my situation instead of just sending documents into the void. The agent I spoke with actually walked me through the voluntary disclosure process step by step.

I need to eat my words about the Claimyr service from my previous comment. After another week of failed attempts to reach my state tax office, I broke down and tried it. Within 3 hours, I was actually speaking with a real person at the department. I explained my situation about collecting sales tax and not remitting it (not as much as OP but still significant), and the agent immediately connected me with their voluntary disclosure department. I was able to start the process right away instead of waiting weeks for a callback that might never come. Just had my follow-up call yesterday and I'm on track to get everything resolved with reduced penalties. Still paying a lot, but WAY less than if they had discovered it themselves.

Dude, not gonna sugarcoat it - you're in deep trouble if you get caught. I worked for a state revenue department for 5 years. What you've done is textbook tax fraud, not just a mistake. The fact that you knowingly collected money as "tax" and pocketed it makes this so much worse than just not knowing you needed to collect. Your best bet is to find a tax attorney who specializes in sales tax ASAP. Like yesterday. Voluntary disclosure is probably your only reasonable option, but with the amount you're talking about ($60-130k), you need professional representation to navigate this.

I'm super confused about this whole situation. If OP is in Canada selling to US customers, why would they even be collecting US sales tax? I thought sellers only have to collect sales tax if they have a physical presence in a state? Can someone explain how this works?