LEAP into Compliance in 2024

Happy Leap Day! While not at all related to sales tax, we thought that as we spend a day aligning our seasons and the Earth’s orbit of the sun, we should also discuss how to ensure your processes align with maintaining sales tax compliance in 2024!

LEAP into compliance with us as we discuss 4 specifics that need to be considered to maintain your compliance in 2024, and beyond.

L: Liability. As soon as you collect sales tax from a client or customer you have a liability to the state or local jurisdiction to remit it back to where it is owed. You should only be collecting sales tax for states and jurisdictions in which you have an obligation. Your sales tax obligation is dependent on where you have established nexus (either by a physical OR economic presence) and the taxability of your products or solutions.   

If you do not collect sales tax when you have an obligation to do so you also have a liability for the tax you did not collect, and if under audit you may be required to pay that as well as penalty and interest for the time period in which you had an obligation and did not collect sales and use tax.  

Understanding and estimating this liability, whether you are currently in compliance or not, is an important step in understanding your steps to gain compliance in 2024.

E: Expect Sales Tax Changes. Sales tax is not static, rules and regulations are continually evolving and the process of managing your compliance is not a set-it-and-forget-it task.   

As your business changes and evolves, so does your nexus. Expect sales tax changes as you grow.  

Filing deadlines for states and local jurisdictions are not static. You can often be notified from a government organization that your filing deadlines have been updated and if you do not do anything about it you will be penalized.  

Tax Rates change. 

Taxability rules are frequently adjusted, especially in the services and software or SaaS industries.  

Having a person in charge of monitoring these sales tax changes is a key part of compliance.

A: Accept You May Not Be Able to do it Alone  

Many businesses, especially those new to sales and use tax, don’t want to spend a lot of time or money to maintain compliance, but if the internal resources and sales tax knowledge are not there, then relying on a software, CPA, or outsourced sales tax solution may be needed.  

Software definitely has its place in the compliance process, but it is important to understand what is AND ISN’T included in your software solution. Oftentimes the liability, changes, and expertise remain on you to maintain.

Having a sales tax expert evaluate your sales tax obligations to give you an accurate account of where you should be registered and collecting tax is a great way to start. And if you don’t have the resources internally to manage a process, then looking to that expert for outsourcing could be a great solution.

P: Process – Ensure you have a process in place that covers all the aspects of your compliance.  

Putting the numbers on a return and sending it to the various jurisdictions is often viewed as the easy part of sales tax compliance. However, in addition to various state and local returns and the level of detail required on each return, there are multiple other factors to consider when establishing a compliance process within your business. 

You must also ensure your process includes: 

• Managing tax data reports 
• Maintaining a tax calendar 
• Preparing to file online vs paper returns 
• Notice management 
• Establish and document controls within your process

Maintaining compliance isn’t as easy as many believe. If you’re looking to offload the burden of managing your sales and use tax compliance, get in touch! TaxConnex specializes in removing the burden of sales tax and ensuring compliance for businesses of all types and sizes.