5 Common Business Situations That Can Expose You to Sales Tax Risk

Managing your sales and use tax process can be difficult for businesses of all sizes and industries. Unlike most countries, there isn't a nationwide sales tax. So keeping up with the continual changes in states and local jurisdictions and maintaining a fully accurate compliance process for a complex business could make even the best of sales tax experts dizzy.

Even if you think you have a compliance process in place, if you aren’t proactive in monitoring sales and use tax rules and in communication with all aspects of your business to ensure no additional obligations are created, you could have risk you're unaware of. In fact, of businesses that we speak with, we find that 20% that believe they're compliant, find noncompliance they haven’t caught.  This blog will examine 5 common business risks that could expose you to sales tax risk so you can be sure to remain compliant.

1. Sales Growth or Sales into New States. Economic nexus was introduced in 2018, by now most businesses are familiar with the thresholds set by states, but it is important to monitor new sales channels and sales growth into new states and jurisdictions because you could be meeting thresholds and be creating a sales tax obligation!
2. New Employees, Office Locations or Warehouses. You can’t forget about physical nexus standards as your business grows. You may be monitoring economic thresholds but you must also remember as your company grows in people (especially as remote roles become more common), office locations and even where your product/inventory is stored, you could be creating a physical presence and thus a sales tax obligation.
3. Change of Staff.  Losing a critical employee who manages your sales and use tax process can be a significant triggering event for a business, especially if they are the only person responsible for this task. Accounting positions are increasingly difficult to fill and if left unfilled, results in lack of bandwidth or expertise to properly manage sales tax. In fact our recent survey of 100 financial executives revealed that 62% of their businesses struggle with attracting/retaining staff with sales tax expertise. If this position goes unfilled and notices or filing deadlines are missed, you could be facing a growing amount of penalties or fees. Learn more about this topic in our recent eBook: A Guide to Managing Sales Tax with a Limited Staff
4. Product Expansion.   You have your current products/services figured out when it comes to taxability, but what happens when you add a new product that doesn’t quite fit into the same boxes? Not addressing the taxability of new products or solutions can lead to big problems as sales pick up. This is especially true if you or are software, Saas or telecom business.  Tax complexities can vary greatly across states and even local jurisdictions and even tiny adjustments and definitions can make a big difference to how something is taxed. For more information on the taxability of SaaS, check out our SaaS map.
5. Audit Notices. This one is not very surprising, as the purpose of an audit is to actually find noncompliance and rectify it. That being said an audit can uncover previous non-compliance that needs to be rectified. Noncompliance found during an audit in one state may indicate there is sales tax risk in other states as well. Unfortunately audits often beget audits, so one bad audit could lead to other states and jurisdictions reaching out as well. Watch the recent replay of our webinar – Strategies for Managing a Sales Tax Audit to learn more about being prepared for an audit and how to manage one effectively.

As a complex business with growth across the country, any one of these situations could create tax complexities if not monitored and addressed. If you’re done trying to maintain all of this on your own, or sick of your software not managing the actual work related to maintaining your compliance, get in touch! With TaxConnex, we will help you through each of these situations and give you a dedicated practitioner to assist you along the way.