6 Steps to Getting Sales Tax Compliance Right in 2024

We are at the end of Q1 of 2024 and continue to discuss how to ensure your business is set up to get your sales tax compliance right in 2024. If you’re like the over 49% of businesses who participated in our annual sales tax trends survey and are unsatisfied with the way you are managing sales tax, then you’re in the right place.

The complexities surrounding managing your sales and use tax obligations continue to evolve and perplex businesses of all sizes. More businesses than ever have a multi-state sales tax obligation and are trying to find the best way to balance their cost of sales tax compliance versus the risk of non-compliance. At the heart of finding that perfect balance is understanding the complexities of the ever-changing state and local sales tax landscape.  

Sales tax is not static, it should not be something that you look at once, determine your obligations, and then move on from. As your business grows and evolves, so does your sales and use tax footprint. Get in front of your growing sales tax obligations with this step-by-step sales tax guide for 2024. 

1. Understand sales tax nexus and why it matters

Nexus determination is the first step in understanding your sales tax obligations. It could be through physical or economic nexus, both of which are important to monitor as your business grows. Ensure you understand where you’ve established nexus to have an accurate account of where you may have a sales tax obligation.  

2. Know when your products or services are taxable

 If you’ve established nexus in a state, then you must determine if your products and/or services are taxable within that same state. Much like nexus, taxability rules differ by state (and even jurisdiction). If your products and/or services are not taxable in a state or jurisdiction, you do not have a sales tax obligation, even if you do have nexus. In the same manner, if you have established nexus and do have a taxable product or service then you have an obligation to collect and remit sales tax.

3. Get your sales tax registrations right

After you’ve confirmed nexus and taxability in a state or jurisdiction you need to register within the state to collect and remit. While this is often seen as a simple step in the process, there are many steps and bits of even personal information needed and it’s important to understand the implications and have accurate information to give.

4. Have a process to manage exemption certificates

If you are a business that works with exempt customers or manages resale certificates for customers who buy for resale, then having a process in place to manage their exemption certificates is a very important piece of your compliance.

The purchaser – not the retailer – has the responsibility for determining whether or not a sale is exempt from tax. If the purchaser does not submit a valid exemption certificate to the retailer, the retailer has the responsibility to assess and collect the sales tax from the purchaser. The retailer has the responsibility to determine the validity of the exemption certificate. Only valid exemption certificates protect the retailer from assuming responsibility for the sales tax on the exempt transactions. Failure to obtain an exemption certificate at the time of sale may leave the retailer with the responsibility to pay the tax to the state if the retailer is assessed tax under audit by the state.

5. Set up a process to charge the correct sales tax on your invoices

There are two pieces of information required to calculate the applicable sales tax – (1) Tax rates; and (2) Taxability rules. These rates and rules can be managed perfectly fine in some situations without the need for a sales tax calculation system. For example, if you’re selling tangible personal property (generally taxable) in a few jurisdictions where the tax rates are easily accessible then a sales tax calculation system is not necessary. However, if you are selling more complex products and services, in numerous states nationwide, then a multi-state sales tax calculation system may be a necessity.

6. Determining how to manage your compliance process

Once you’ve determined your requirements to collect and remit sales tax, you’ve set-up a process to charge sales tax, and you have registered with each required state, you need to consider how you will manage the return filing process. There is more to filing than remitting funds and sending in a sales tax return. There needs to be someone to manage the process and ensure you aren’t missing steps and are following the complex processes and steps set aside by the states and jurisdictions to stay compliant.

For most, this is a determination of outsourcing or managing sales tax in-house.

Don’t get sucked into a ploy that an automated system can do it all for you, while it may help in some areas, there is still a need to manage the system and evaluate the changes to your business and filing directions, that is on you and your team. So to us, it’s still an outsource or manage internally discussion.

If you don’t have the bandwidth or knowledge base to manage sales tax internally, then looking to outsource this aspect of your compliance could be a huge help, saving you time, money, and risk.

If you’re looking to learn more about TaxConnex’s outsourced sales tax compliance service offering – get in touch!

Ready to learn more about the step-by-step tax guide for 2024 - download our ebook!