5 Situations CPAs Need to Watch for in Managing Their Clients' Sales & Use Tax Risk

In the world of accounting and tax, CPAs, accounting firms, and advisory firms play a vital role in helping individuals and businesses manage their finances and stay within the rules. But one tricky area that often causes headaches is sales and use tax.

Whether you’re managing sales and use tax for your clients or not, you've most likely come across situations where your clients want to sell their businesses, secure outside capital, or ensure they’re not at risk from previous exposure. In these cases, you might discover unexpected sales and use tax problems that could be very detrimental if not handled properly.

Whether you choose to manage sales tax within your firm or partner with experts, it’s important to stay knowledgeable on the complexities of sales and use tax and common situations that your clients will experience that can create additional sales tax obligation and if not monitored, sales tax risk.

As a trusted advisor to your client, it’s important to be prepared for the eventuality of an equity event or even an audit.

Common Situations to Watch For (that create sales tax risk):

1. Sales growth or sales into new states. A growth in sales can be a very exciting time, but as sales add up in new states and jurisdictions, so could the economic presence of a business, adding sales tax obligations in new states.
2. Adding new employees, locations, or warehouses. Any of these additions to your business can create a physical presence for a business, expanding sales tax obligations.
3. Change of staff. Losing a critical employee managing sales tax can be a significant triggering event. Accounting positions are increasingly difficult to fill, and if left unfilled, results in a lack of bandwidth or expertise to properly manage sales tax.
4. Audit notices. 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.
5. Product expansion. As new products/services are added to a business, sales tax obligations can be altered depending on the taxability of the new products/services.

If when discussing your client's business any of these topics are brought up, and you’re not already monitoring their sales and use tax obligations or are unsure how they are currently managing these obligations, it is important CPAs guide them on risk management to avoid sales tax non-compliance, potential penalties, and fees resulting from a poor audit.

If sales and use tax is not something you want to be involved with, or you just have questions on how to continue to manage your clients’ sales and use tax obligations, get in touch! TaxConnex acts as a non-competitive partner for Accounting Firms and CPA tax help, giving them a trusted partner to alleviate the burden of sales tax for their clients. Get in touch to learn more about CPA risk management!

Read more about Identifying & Managing Your Clients’ Sales & Use Tax Risk in our new eBook – download now!