You might think that collecting the tax and filing a tax form is all you need to be sales tax compliant. You wouldn’t be completely wrong – filling out the form is a huge start – but other steps are needed to fully manage your compliance.
1. Knowing when and how to remit payments
Ideally, all your sales tax calculations are managed in one system to produce a single report each month with details of all your sales and use tax liabilities.
Bear in mind, though, that as your business grows, you may need different sales tax processes. Be sure you have a process to gather the applicable data each month and reconcile all new data to your general ledger before you start the filing process.
Once a sales tax return is prepared, it must get filed and paid. Filing can include mailing or electronic filing. If you mail a return, it must be signed, copied or imaged for future reference, stuffed in an envelope, metered and delivered to the post office for certification of mailing. If you electronically file a return, it must be entered manually or uploaded into a unique jurisdiction website.
You need a process to prepare and file both online returns and paper returns. Most every state will be an online filing with an electronic payment – but local jurisdictions often require paper returns with a check. Be sure to understand any IT restrictions that may prevent you from accessing the states’ website and also recognize your internal deadlines to process checks.
That brings us to another filing matter: a tax calendar. It’s critical to maintain an accurate calendar that reflects where your business is registered for sales tax purposes, the filing frequency of each return, the e-file login credentials and other state-specific information. It will need to be maintained and updated as your filing frequencies change or you register in additional state or local jurisdictions.
Regardless of the filing method, payment is generally required and can be a check, an ACH debit or an ACH credit.
All of these remittances, mailing and filing activities require human action, processes, controls and related costs.
2. Jurisdiction correspondence
Once your business is registered with a tax jurisdiction, it can expect recurring mail: notifications of law and tax rate changes, blank tax forms, account changes and notices regarding previous filed tax returns, among other subjects.
These notices may arrive in snail mail, show up in your email inbox or simply be posted to your account on the jurisdiction’s website. You must know where to look and be sure you have someone designated to read and respond as needed.
Though most of this correspondence can be routine, a small percentage of it does require action – often by a deadline. A knowledgeable person must review each article of mail ASAP to separate the irrelevant from the time-critical and to get the mail into the proper hands. This too requires human action, processes, controls and related costs.
Every notice represents the information you need to remain in compliance and something that requires diligent monitoring and timely attention and response. Ignoring a notice could put you and your company at risk, opening the door to additional penalties.
3. Audit work papers
Once a return is filed, some form of documentation must support the reported tax liabilities in case the return is audited. This documentation must easily show a trail from the core business transactions – customer invoices or vendor invoices, for instance – to the lines on the tax returns. It should also include proof of exemptions if applicable, and support for bad debt write-offs and other adjustments.
In the event of an audit, documentation is both your best tool and your best defense. You can expect to provide copies of your filed returns and supporting data (including sales journal, exemption certificates and general ledger data supporting the returns).
Note too that the cost of accumulating this information can be expensive if it’s gathered after the original tax return preparers are gone and the data is stored in archives.
TaxConnex provides an outsourced sales tax service instead of sales tax software that you have to manually update and helps you get all of these tasks managed. Contact TaxConnex to learn what it means when sales tax is all on us.