TaxConnex Sales Tax Blog

Sales Tax Compliance - The Importance of Good Old Fashion Service

Posted by Robert Dumas on Tue, Dec 06, 2016 @ 10:57 AM

old fashion service-623920-edited.jpg

I heard a story about Chick-Fil-A on the radio this weekend that has reminded me about the importance of service.

My apologies in advance to Chick-Fil-A and the characters in the story to the extent I get the details wrong, but I believe I am getting the moral of the story right.  Here we go…at a strategy meeting of Chick-Fil-A executives, they were discussing the need for faster growth to fend off another competitor that seemed to be growing faster at the time.  After listening intently to the discussion, Truett Cathy – the much revered and respected founder of Chick-Fil-A – stopped the conversation and stated that he did not want to hear anything else about fast growth.  He wanted to discuss how Chick-Fil-A could get better.  He said if Chick-Fil-A gets better, the market will demand they get bigger.  Based on the results, I think Truett Cathy has proven he was right!

As the founder and leader of TaxConnex, I am always trying to push for faster growth.  I measure part of our success on year over year revenue growth because businesses with fast growing revenue are deemed more valuable and exciting. 

There is definitely truth in this, but fast growth does not mean the business is getting better at what they do. 

We see this in the sales tax compliance industry, which is dominated by fast growing technology companies.  These businesses have created and built software applications using the latest technologies – e.g., “the cloud” – and developed a very appealing message of push button simplicity.  There are definitely aspects of sales tax compliance that demand and require the latest and greatest software technologies, but there is a significant aspect of sales tax compliance that also requires good old fashion service.  

It is critically important for businesses in sales tax compliance to strive to get better whether we provide technology or service.

TaxConnex is a premier service provider that uses proprietary and licensed software solutions to manage the financial risk of all or part of a business’s sales tax compliance responsibilities.  I am reminded by Chick-Fil-A that my goal for fast growth will only be achieved if we constantly get better at what we do.  

 

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Topics: sales tax, sales tax service

3 Components of Sales Tax Compliance You Haven't Considered

Posted by Robert Dumas on Tue, Nov 29, 2016 @ 02:19 PM

I get the opportunity to talk to many businesses and CPA firms about our sales tax outsourcing services at TaxConnex.  When most of the people we talk to refer to sales tax compliance, they are thinking about tax return preparation only.   They never consider the other components of compliance. 

 

This blog is going to highlight three of these ancillary components of sales tax compliance:

FilingMailingRemittance.png

 

1. Filing, Mailing & Remittance    

Once a sales tax return is prepared, it must get filed and paid.  Filing can include mailing or electronic filing.   If you mail a return, it must be signed, copied or imaged for future reference, stuffed in an enveloped, metered and delivered to the post office for certification of mailing.  If you electronically file a return, it must be entered manually or uploaded into a unique jurisdiction web-site.  Regardless of the filing method, a payment is generally required and can be a check, an ACH debit or an ACH credit.  All of these remittance, mailing and filing activities require human action, processes, controls and related costs.

 

2. Jurisdiction Correspondence    

Once a business is registered with a state and local jurisdiction, it can expect multiple pieces of recurring mail from each jurisdiction.  This correspondence includes notifications of law and tax rate changes, blank tax forms, account changes and notices regarding previous filed tax returns.  Though 90% or more of this correspondence is not relevant, there is a small percentage of this mail that requires action. 

Many times, the action required is time critical so any delay in responding creates risk with the jurisdiction.  Unfortunately, a person with some level of knowledge (as opposed to a technology), must review each article of mail as quickly as possible to separate the irrelevant from the time critical and to get the mail into the proper hands.  This too requires human action, processes, controls and related costs. 

 

3. Audit Workpapers   

Once a tax return is filed, there must be some form of documentation to support the reported tax liabilities in case the tax return is audited in the future.  Ideally, this documentation provides an easy trail from the core business transactions – for example, customer invoices or vendor invoices - to the lines on the tax returns.   The documentation should also include proof of exemptions, if applicable, and support for bad debt write-offs and other adjustments.   The cost of accumulating this information can be extensive if it is gathered after the original tax return preparers are gone and the data is stored in archives.

 

Just last week I ran into a situation where a company was using another firm to prepare paper based returns.  The company then had to login to the e-file site to file and pay and/or cut checks and send the return and check to the jurisdiction.  It’s not an efficient process to have multiple parties involved in the preparation, filing, and payment of the sales tax returns. 

Be sure to factor in all of the relevant processes, costs, and risks when evaluating whether to outsource and to whom.

 

In case you missed it!  Great read; originally run October 2016. Click here to catch up on more blogs. 

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Topics: sales tax compliance, sales tax, sales tax outsourcing

A Happy New Year for California!

Posted by Noelle Ard on Tue, Nov 22, 2016 @ 10:00 AM

happy new year ca.jpg

In recent news, the California State Board of Equalization (CA BOE) announced a statewide sales and use tax rate decrease of 0.25% from 7.50% to 7.25% on January 1, 2017.

Although the decrease is effective for all cities and counties in California, the actual sales and use tax rate in many jurisdictions in California may still be higher than the statewide rate due to the addition of district taxes.

Decreasing sales tax rates have you wondering what’s up? 

The Schools and Local Public Safety Protection Act of 2012  which raised the sales and use tax by .25% expires December 31, 2016!. Cha Ching!

Other notable changes to California’s tax system voted on by residents;

  • The addition of a $2.00 per pack sales tax on cigarettes, as well as other smoking products (e-cigarettes, tobacco, etc); bringing the total to $2.87 per pack.
  • California voters legalized marijuana to be used recreationally with a sales tax of 15% on the retail sale plus additional fees effective January 1, 2018. 

Additional information can be found by logging onto the CA BOE website at http://www.boe.ca.gov/sutax/prop30.htm 

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Topics: sales tax, California

EYE ON Minnesota Sales Taxes

Posted by Jeff Meigs on Thu, Nov 17, 2016 @ 11:12 AM

eye on minnesota.png

 

The Minnesota sales and use tax is imposed on taxable retail sales of tangible personal property and certain services. 

The statewide general tax rate is 6.875% - and if you happen to be around on July 1, 2034, the rate is scheduled to go down to 6.5%. 

So just hold off a bit longer on that expensive purchase.   

 

A political subdivision can impose a general sales tax under:

(1) the metropolitan transportation area sales tax,

(2) the greater Minnesota transportation sales and use tax, (3) if permitted by special law, or

(4) if the political subdivision enacted and imposed the tax before the effective date of Minn. Stat.  §477A.016 (enacted in 1981) or its predecessor.


The 10 biggest cities in Minnesota, according to the 2010 census, are: Minneapolis; St. Paul; Rochester; Duluth; Bloomington; Brooklyn Park; Plymouth; St. Cloud; Eagan; and Woodbury.

Of these 10 big cities, only the following impose state-administered sales taxes: Duluth, Minneapolis, Rochester, and St. Paul. The rest of the top 10 cities do not impose sales taxes.

Clothing is generally exempt from the Minnesota state and local sales and use tax.  We say “generally exempt” as there are certain items that do not qualify as clothing, such as:

  • Belt buckles sold separately.
  • Costume masks sold separately.
  • Patches and emblems sold separately.
  • Sewing equipment and supplies, including but not limited to, knitting needles, patterns, pins, scissors, sewing machines, sewing needles, tape measures, and thimbles (but see special exemption explained herein).
  • Sewing materials that become part of clothing, including but not limited to, buttons, fabric, lace, thread, yarn, and zippers.
  • Clothing accessories or equipment. “Clothing accessories or equipment” means incidental items worn on the person or in conjunction with clothing. Clothing accessories and equipment include, but are not limited to, briefcases; cosmetics; hair notions, including barrettes, hair bows, and hairnets; handbags; handkerchiefs; jewelry; nonprescription sunglasses; umbrellas; wallets; watches; and wigs and hairpieces.
  • Sports or recreational equipment. “Sports or recreational equipment” means items designed for human use and worn in conjunction with an athletic or recreational activity that are not suitable for general use. Sports and recreational equipment includes, but is not limited to, ballet and tap shoes; cleated or spiked athletic shoes; gloves, including but not limited to, baseball, bowling, boxing, hockey, and golf gloves; goggles; hand and elbow guards; life preservers and vests; mouth guards; roller and ice skates; shin guards; shoulder pads; ski boots; waders; and wetsuits and fins.
  • Protective equipment. “Protective equipment” means items for human wear and designed as protection of the wearer against injury or disease or as protection against damage or injury of other persons or property but not suitable for general use. Protective equipment includes, but is not limited to, breathing masks; clean room apparel and equipment; ear and hearing protectors; face shields; finger guards; hard hats; helmets; paint or dust respirators; protective gloves; safety glasses and goggles; safety belts; tool belts; and welder’s gloves and masks.


And just when you thought it was straight forward to comply with Minnesota sales and use taxes:

Vendors with liability of $250,000 or more for a fiscal year ending June 30 must make an accelerated payment for the June liability for the next year as follows: 81.4% of the estimated June liability is due two business days before June 30, and the remaining amount of the June liability is due on August 20.

 

Stay tuned for more of Jeff's EYE ON series as he blogs aboout sales and use tax State by State

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Topics: sales tax, Minnesota

Service Vs. Technology

Posted by Brian Greer on Tue, Nov 15, 2016 @ 10:15 AM

Be afraid of a sales tax compliance solution that promises “easy” and “push button simplicity”.  Because of the complexities surrounding sales tax compliance, business owners and finance leaders want to hear there’s an easy answer to automate their sales tax compliance.  These business owners and finance leaders talk with different companies involved in the sales tax compliance industry and often times buy from whomever promises what they want – ease and simplicity.  However, it’s not always that simple.

I believe that technology can play a vital role in sales tax compliance. 

I divide sales tax compliance into two distinct functions – (1) Calculating the applicable sales tax and adding the sales tax to an invoice; and (2) Making sales tax decisions including nexus decisions, where and when and how to file sales tax returns, and managing day-to-day sales tax questions.  Technology is most valuable in calculating the applicable sales tax.  But be wary of a technology-first solution where decision making is required. 

A service-first approach is best in the decision making area.

The infographic below shows the difference between the service-first approach and the technology-first approach as it relates to sales tax compliance outsourcing. 

Who do you want to speak with when you have a question – a person or a computer?

service vs tech image.png

Topics: sales tax outsourcing, sales tax service, sales tax technology

TaxConnex's Robert Dumas in Accounting Today

Posted by Kate Bennett on Thu, Nov 10, 2016 @ 10:15 AM

Like self-driving cars, some things are best not 100% automated - sales and use tax is one of those things.  As seen in the latest supplement from Accounting Today, TaxConnex’s Managing Partner, Robert Dumas explains the importance of working with an experienced Sales Tax Outsourcing Service Provider, with a breadth of knowledge of sales and use tax accounting, and not solely a sales tax technology solution.

Robert Dumas AT.png

At TaxConnex we focus on providing service. Whether that be through our sales tax outsourcing practice or our consulting practice where we assist with sales tax nexus reviews, audits, VDA’s, and taxability reviews. Service is key – understanding clients’ issues, developing solutions, following through on our commitments, being responsive to questions and requests – all are critical. Technology complements the great service, but never replaces it.

 

Click below to read entire article in Accounting Today  

OPPORTUNITY IN COMPLEXITY

THE RAPIDLY CHANGING LANDSCAPE OF SALES & USE TAX


 

Topics: sales tax outsourcing

Top 3 Differences in Income and Sales Taxes Management

Posted by Robert Dumas on Thu, Nov 03, 2016 @ 02:10 PM

taxes.jpg

Would you manage your sales tax process the same way you manage your income tax process? 

Of course not. 

Why?  Because they are two different types of tax with differing risks, complexities, and timing.  As you develop an effective sales tax process, it’s important to understand how these tax types are different and therefore how you manage them should also be different. 

I’ve noted a few of the differences below:

1. Income tax is imposed on the business or person that generates the income.  Sales tax is imposed on the person (i.e., individual or business customer) that consumes the taxable property and services sold by the business. 

The income tax paid by a business is their liability and their expense, whereas the sales tax liability of a business is generally the tax liability of someone else and not a business expense – sales tax is considered a pass through tax.  With sales tax, a business is a sales tax collection agent for the government and the government says if you don’t collect and remit this tax correctly, it becomes your liability.   (NOTE:  This does not mean a business does not have a sales tax liability for property and service it consumes.  However, the reporting and remittance of these sales taxes are generally handled by the business’s vendors.)

2. Income tax is reported and paid annually with quarterly estimated payments and an extension opportunity.  Sales tax is reported and paid much more frequently but usually monthly with a recurring monthly due date of the 7th, 10th, 15th, 20th, 25th or 30th depending on the jurisdiction. 

The income tax reporting is extraordinarily complex with multiple forms and schedules at the federal, state and local levels.  The sales tax reporting is much less complex overall with no federal reporting but extensive local reporting in certain states.  Additionally, depending on the state, there is a huge disparity in reporting detail for sales tax as there are certain returns that are very complex while others are quite simple.

3. Data for reporting income tax generally starts with the annual trial balance, which is a compilation of transactions, but sales tax generally starts with the monthly transactions. 

This can result in massive and complex amounts of sales tax data each month due to the extensive and detailed reporting requirement in certain states.  Additionally, the data must be available quickly in order to meet the monthly due dates – which as previously noted can be very early in the month.

 

Creating an effective sales tax process must account for the unique characteristics of sales tax.  Namely the voluminous amounts of data and extremely small windows of time to process the data and returns each month.  If not managed properly, what is otherwise a pass through tax will become the tax liability for your business.

 

TaxConnex acts as Your Outsourced Sales Tax Department.  To learn more about sales tax outsourcing click below.

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Topics: sales tax compliance, income tax

EYE ON Michigan Sales Taxes

Posted by Jeff Meigs on Thu, Oct 27, 2016 @ 02:16 PM

 EYE ON Michigan.png

The Michigan sales and use tax is imposed on taxable retail sale of tangible personal property and certain services.  The statewide general tax rate is 6%.  There are no local sales or use taxes imposed in Michigan.   

We covered the concept of sales and use tax “nexus” in a prior blog – Michigan asserts nexus for sales and use tax purposes when the taxpayer has a physical presence in the state. 

Without going into the details of what qualifies as physical presence, I did want to point out that when a company has an employee or agent visit the state for purposes of solicitation or in the performance of a service for more than one day during a calendar year, the company will have nexus for Michigan sales and use tax purposes. 

Michigan is one of a very few states that provide specific guidance regarding the number of days required to establish nexus. 

The Michigan Department of Treasury can be effective at identifying companies with nexus in their state – sending nexus questionnaires.  The nice thing about the Michigan approach with nexus questionnaires is that they usually allow the company receiving the questionnaire to enter into a voluntary disclosure with the state if nexus has existed for some period of time.  The voluntary disclosure program provides for a waiver of penalties and limited look-back where the sales tax was due but wasn’t charged and collected by the company. 

Despite it being the primary industry of the state for decades, the 6% Michigan sales and use tax applies to the sale/purchase of a motor vehicle. 

With a relatively low sales and use tax rate and no local taxes, Michigan is fairly straight forward state for sales and use tax purposes. 

Stay tuned for more of Jeff's EYE ON series as he blogs aboout sales and use tax State by State.

 

Sales Tax Nexus

 

Topics: sales tax nexus, sales tax, Michigan

When Should You Register with State and Local Taxing Authorities?

Posted by Brian Greer on Wed, Oct 26, 2016 @ 02:10 PM

We get this question alot! So we decided to re-run this informative blog from April 2016.

“It depends.”it_depends-1

This single question could fill volumes to get to the proper answer. The simple answer is if you have sales tax nexus in a state, then you should register with the Department of Revenue for a sales tax id number and begin collecting and remitting sales tax.

However, there are several other questions you should answer first:

  1. When did you first establish sales tax nexus in the jurisdiction? (You may be required to remit prior period returns including tax due from these prior periods.)
 
  1. Are your products/services taxable in the jurisdiction(s) where you have sales tax nexus? (Your products/services may not be taxable. Should you still register? Statutorily – yes. Practically – maybe not.)
 
  1. Are your customers taxable – are they government entities, non-profits, or otherwise exempt businesses? (If they are you need to be sure you have the appropriate exemption certificates.)
 
  1. How much tax exposure do you have from prior periods? (Depending on the materiality of the prior period liabilities, a Voluntary Disclosure Agreement could be beneficial.)
 
  1. Did your customers already self-assess and remit use tax? (This may get you “off the hook” at least partially but I don’t recommend this as your compliance strategy long-term.)

     

Something I’ve discovered over the years is that there is hardly ever a “Yes” or “No” answer when it comes to sales tax.

There are always questions that lead to more questions. The decision tree is very complex and can vary based on the risk tolerance of the business. One business may have the same set of facts but due to their risk-tolerance they may make a completely different decision regarding sales tax compliance than another business.

Sales tax is about balancing risk and cost.

How much does it cost to be 100% compliant? Is it worth it to be 100% compliant? I’m not suggesting anyone do anything illegal. But the nuances and levels of complexities across jurisdictions make it practically impossible to be 100% compliant – even if you want to be.

While we may want sales tax to be simple and to have simple answers to simple questions, it’s just not reality. For now, we’ll answer questions with questions. And we’ll continue to throw out the most famous words of every sales tax consultant ...

“It depends”.

 

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Topics: sales and use tax, sales tax registrations

District of Columbia Sales Taxes– Out with the Old…In with the New!

Posted by Noelle Ard on Thu, Oct 20, 2016 @ 02:03 PM

DC-477904-edited.jpgI know your first thought was the Presidential election right?  No, silly, this isn’t a political rant, this is all about the new Sales and Transaction Taxes website!

The District of Columbia has announced a major upgrade that will coincidently coincide with the November election. 

MyTax.DC.gov will become the official Office of Tax & Revenue (OTR) reporting and remittance portal.  The upgrade will begin in November 2016 and will offer the benefits of the current system, along with additional functionality and ease. 

The intial release will only support specific business taxes (not sales and use) and will offer companies a one stop shop to handle the reporting and remittances for various withholding, payroll, franchise, and corporate taxes. 

Sales and Use tax will migrate from the eTSC portal to MyTax.DC.gov in Fall 2017, allowing sales and use tax enthusiasts and compliance guru’s another year to remain optimistic that we weren’t forgotten.  Sales tax always seems to play second fiddle and never ever gets to be first…ever!

In anticipation of the migration to the new MyTax.DC.gov website, the District of Columbia has announced the following service that will be temporaily unavaialble via their website that does impact sales and use tax:

Services Temporarily Unavailable – October 24 through October 31, 2016

FR-500 Combined Business Tax Registration Application: Taxpayers will no longer be able to complete the online business registration using eTSC.  During this transition period, taxpayers who wish to register a new business, must complete the paper form FR-500 available at http://otr.cfo.dc.gov/node/500352. Beginning November 1, all business tax registrations must be completed online at MyTax.DC.gov.

So while we won’t get the opportunity to utilize the new MyTax.DC.gov website for sales and use tax filings until next year, we will get to try it out for new business registrations starting in a few weeks! 

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Topics: sales tax, Washinton DC