Over the years, I’ve noticed how sales tax is often pushed aside and overlooked as competing priorities squeeze business owners’ and tax departments’ time. There are numerous situations when I’ve heard, “I don’t have time to talk about sales tax right now because________.” You fill in the blank. Because it’s year-end. Because state income tax returns are due. Because we’re in the middle of an acquisition.
Meanwhile, sales and use tax is still there. It’s like the elephant in the room that nobody wants to talk about. This de-prioritization of sales tax is indicative of what a former colleague of mine referred to as the “set it and forget it” strategy. Specifically, at a point in time, a company determines their sales tax nexus footprint, they identify taxability, and set up their billing systems to calculate tax appropriately. Then every month they get a report from their financial system and prepare their returns without any additional analysis or review.
What these companies often miss is that they’ve added personnel in new states. Or sales reps are traveling into new states soliciting business. They’ve missed a state that has changed their statutes and a product or service that was once deemed non-taxable is now taxable. Maybe the company has changed who they buy supplies from and the new supplier is out of state and no longer charges sales tax to the company…leading to a use tax responsibility. These are changes specifically tied to the company side. What about the changes on the jurisdiction side? New rates, new rules, and new forms are introduced monthly. It’s a difficult task to keep up with even when you are focused on it.
So what can you do? You can look forward to a day when all states adopt a common sales tax system (this is widely known as the Streamlined Sales Tax Agreement) – this has its own obstacles for a different blog post. Alternatively, you can hire a resource internally to manage this for you. Or you can align yourself with an outside expert to support you. Regardless of which option you choose, choose something. Don’t let sales and use tax go unchecked another minute!