Expansion into new states, changing tax laws, new product launches, and acquisitions make taxability decisions challenging. There are over 7,000 taxing jurisdictions and many have their own unique set of rules and interpretations. Not taxing a product or service appropriately could lead to significant exposure over time. Take the following example:
Product / Service A is not taxed, but in reality should have been taxed. Year 1 sales total $100,000 and grows 20% per-year over a three year period. That’s $364,000 of sales over a three year period. With an average tax rate of 8%, that’s over $29,000 of uncollected tax. An additional penalty and interest assessment would take the total exposure to close to $40,000. That’s a tough number for almost any business to cough up.
The best way to mitigate this type of risk is a proactive approach to taxability determination. TaxConnex has performed hundreds of taxability reviews for our clients in industries including telecommunications, high-tech, information services, manufacturing, construction, and leasing.