Sales tax compliance is riddled with risk for the tax payer.  A lot of the risk is external to your business.  There are thousands of taxing jurisdictions – each seemingly with unique sales tax rates and interpretation of what’s taxable and not taxable.  A solid compliance process helps minimize this external risk.  However, what happens when the risk originates internally in the form of turnover or some other internal disruption?

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The best way to manage risk associated with potential disruptions within your sales tax department is to maintain thorough documentation of your department’s compliance processes.  Process documentation helps to reduce confusion related to process responsibility among staff members, can serve as training material for new staff, and can help non-department members understand department responsibilities. 

The following areas at a minimum should be included in your documentation:

  • Data Management:  Include a list of source reports for monthly sales & use taxes, what systems the reports are generated from, who is responsible for generating the reports, where the reports are stored, and when they are available each month.  Also include a description of what information from each report is used and how.
  • Tax Calendar: Maintain a listing of all tax returns that are filed for each company, who is responsible for filing the returns, account IDs, filing frequencies, due dates, login credentials,  payment methods, and reporting methods.
  • Return Specific Instructions:  Document all return specific requirements such as manual adjustments, prepayment calculation methods,  and credit reporting.
  • Document Management: List all documentation and backup workpapers that are stored for each return and where they are located.
  • Reconciliation Procedures: List all G/L accounts that are impacted by the compliance process and the specific reconciliation procedures for each account

This level of documentation will be managed by your sales tax outsourcing partner if you choose to outsource your sales tax compliance process.

However, if you choose to manage sales tax compliance internally, by keeping thorough documentation of your processes the benefits will reveal themselves in terms of time savings, accuracy, and ease of transitions, when or if you experience some type of internal disruption.

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Anne Birkmann

Written by Anne Birkmann