Three C’s of Sales Tax Compliance

Sales tax is meant to be a pass-through tax and thus one that should have minimal impact on a company’s bottom line. The sales tax is collected by businesses and “passed-through” to the taxing jurisdictions. Of course, there is cost associated with managing this compliance obligation; however, the costs of not managing the compliance process are significantly greater. If you fail to collect and remit the applicable sales tax when you have an obligation, under audit a jurisdiction will assess the tax due + a penalty + interest. This then becomes a bottom line hit unless you can recoup from your customers.

Many businesses have argued that with the introduction of economic nexus in 2018, sales tax has become a much bigger burden on businesses than originally intended. But as states continue to report gains in revenue from collected sales tax, it’s not likely we will see it going away any time soon. That leaves businesses to figure out the best way to manage their obligations to remain compliant.

To help you get started, we’ve compiled information on 3 important components of your sales tax compliance process, or as we refer to them, the 3 C’s of Sales Tax. Once you have an understanding of how to implement these components into a compliance process, you’ll be set for success.

1. Consulting

Your first C is Consulting.  Consulting is your first step in the process and is all about understand your obligations so you can move forward with compliance.  While consulting is our first C, and often the first step in maintaining compliance, it is important to understand that the aspects of consulting can be utilized at any point in your sales tax journey and you should expect your sales tax obligations to change and evolve as your business grows. So while you may know what your obligations are now, it is important to continue watching your sales tax exposure and may end up coming back to Consulting in the future.

2. Calculation

Your second C is calculation. Sales tax calculation is all about understanding how you will apply the correct sales tax rate to your invoices based on state and local tax rates and taxability rules.

For some businesses, especially those selling only TPP (tangible personal property) these rates and rules can be managed within the business, but for others, when the rules become more complicated, a sales tax calculation software could be critical. It’s important to understand your situation and choose the right solution for you.

3. Compliance

Lastly, but certainly not least is compliance, or a compliance process.  The “compliance” aspect that we are describing here is focused on the filing of returns and remittance of sales tax collected. Like much of sales tax, the filing and remittance is not always as straightforward as you would think. With compliance there are several areas you must consider, including:

• Registrations
• Tax data reports
• Tax Calendars
• Online vs Paper Returns
• Controls
• Notice management

Managing all of this alone is a lot for any size business. No matter where you are in the process or if you have all your C’s covered or not, it’s important to keep a check on your obligations and how to move forward and comply. If you’re looking for support and expertise – get in touch – TaxConnex can help!

Ready to learn more about the Three C’s? This blog is an excerpt from a larger eBook – download the full eBook to learn more!