Sales tax is complex for businesses of all sizes. If you are a business with customers in multiple states, your scope and risk grows in accordance with the number of states and the sales tax complexities in those states. Sales tax obligations begin with whether you have nexus in a state or other locality. Nexus today largely stems from two main factors – a physical presence or economic presence. Once nexus has been established you must determine if your products/services are taxable. If you have nexus AND your products/services are taxable, then you likely need to register and comply.
Assuming you already have processes in place to charge and collect sales tax, file returns and remit payments to the tax jurisdictions, you most likely have an understanding of your current sales tax obligations. But, with the addition of employees, products/services, more sales in new states, or mergers and/or acquisitions, your nexus and taxability could evolve overtime.
- Conduct an exposure review to determine your current nexus and taxability – without an accurate and up to date knowledge of where you have an obligation you can’t ensure you are managing compliance correctly
- Create a billing process to apply tax to your invoice – this can be performed natively within the invoicing system or through a 3rd party sales tax calculation software
- Ensure you have a way to manage exemption certificates, including periodically updating expired certificates
- Register where you have a sales tax obligation and ensure your current sales tax id’s are up to date, renew where necessary. Ensure you have someone monitor activities that could create new sales tax obligations and require new registrations.
- Prepare and file returns based on due dates (could be monthly, quarterly or annually) in each of the jurisdictions where you have an obligation
- Have a process to pay the respective jurisdictions where you are registered to collect and remit and maintaining a paper trail to include proof of mailing
- Develop a notice management process to ensure jurisdictional notices are responded to in a timely fashion
- Maintain documentation in the event of turnover or a change in personnel
- Allocate time to key employees who can manage sales tax audits and respond to nexus questionnaires issued by the jurisdictions
- Maintain an accurate tax calendar to include changes in filing frequencies and changes in filing methods (paper vs. e-file) and change in payment methods (prepayments, check and/or electronic payments)
Managing your sales and use tax obligations is not a small task. Ensuring you have the right people and processes in place is key to maintaining compliance and not putting yourself or your business at risk. If you’re looking to make a change in how you manage sales tax obligations (or get started), get in touch!