Having sales tax nexus doesn’t always mean that a business should immediately register with the respective Department of Revenue. There are several additional questions and business practices that should be reviewed as part of a decision to register and comply. If a company’s products or services are statutorily exempt and no sales tax is due, then the registration is likely unwarranted. However, there are some states with a gross receipts tax where the registration and compliance would be required.
I hope no auditors see this next piece of advice, but I frequently advise companies to not register even when they have sales tax nexus and their products/services are taxable. Here are some situations to consider:
- I have often seen companies that have a transaction or two with minimal sales tax associated with the transaction. If these are one-off sales and no future sales are expected, it’s hardly worth it to register and start filing prospectively for what’s likely a non-material tax liability.
- If you have collected the tax and it seems non-material but you just don’t want it on your books, some jurisdictions allow you to remit sales tax without a tax id or apply for an occasional filing frequency so as not to have to file a monthly return.
- One of the more common approaches is to accrue the tax and wait until a particular threshold is reached before registering and complying prospectively.
- Another potential option associated with local filings in Alabama, Arizona, Colorado, or Louisiana would be to remit the local tax to another local jurisdiction or remit it all to the state.
- Discovering that you’ve had sales tax nexus historically and have prior period tax obligations is another variable to consider. In this situation, a Voluntary Disclosure or Amnesty approach could be helpful.
Each of these options carries a different level of risk. It’s helpful to review the risk and understand the costs of compliance as well. Knowing these two factors, a business can balance risk and cost and make the decision that most closely aligns with their business practices.
If you have questions, call us or look at TaxConnex Sales Tax Consulting for more info.