Pitfalls of sales tax compliance: in-house resources

Many companies don’t think about how to handle sales tax obligations until it’s too late.

Previously we looked at how such back-office functions as the general ledger, tax calendar and billing system can cause problems with your sales tax compliance. Is it worth your time to pay attention to all these potential potholes? “It’s just sales tax. It’s just putting a number on a form,” you might say. “How hard can it be?”

There are nuances beyond putting numbers on a sales tax return. There are 50 different state sales tax systems and 50 different sets of laws and rules.

How can you and your staff handle this complex task?

No ‘additional task’

Sales tax compliance is not a value-added responsibility for you: It’s a tax-collection responsibility imposed on you. And when managing sales tax in-house, one of the biggest issues is insufficient resources. Our latest annual survey of top finance execs revealed that almost half (48%) are “not fully satisfied” with how their business handles sales tax compliance. An equally telling figure: Most of those execs have their company handle sales tax, fully or partially, using in-house resources.

You can’t just give the job as an additional task to someone who already has a full desk. Insufficient resources can cause serious problems with your sales tax obligations:

• No oversight or review, leading to ignored notices from tax jurisdictions and recurring mistakes (especially as states’ sales tax rates change fast).
• In-house administrators for your state tax portal leave your company and aren’t replaced or their log-in information isn’t passed on, meaning you miss crucial correspondence from tax jurisdictions.
• Knowledge of your sales tax obligations and how to handle them is too single-threaded in your organization.

Avoid future shock

In the bustle of trying to make the monthly sales tax return due dates – not to mention and all your other job responsibilities – you’re going to forget quickly what you did on a given sales tax return. Three years from now when an auditor comes knocking, you may well have no recollection of how you came up with the numbers for that return.

Develop a legacy level of support for the sales tax returns you file. Save them in a centralized location so they’re available if you leave the business or a sales tax audit happens down the road. Such centralization is also helpful if you’re in a deal to be acquired; vague sales tax histories can spell danger to a potential buyer and derail a promising M&A. Your audit trail should include the reconciliation of your sales data to tax returns; your tax return workpapers and support; and complete records of your invoices for the taxable periods in states where you have nexus.

Sales tax can be complicated, especially if you sell in many states. Companies often learn the hard way that there isn’t a technology solution by itself that can do sales tax for you. You need great technology and oversight of it, someone making clear cost-benefit decisions about it and monitoring it every month.

Nor can you take a set-it-and-forget-it mentality toward sales tax obligations. Something in your business will change, and those changes will feed into your sales tax process. You have to have dedicated and long-term oversight.

(Learn more on our webinar “Don’t Test Your Luck: The Pitfalls of Sales Tax Compliance.”)

Let TaxConnex manage the burden of keeping up with all the tax challenges and changes that come with staying compliant. Contact us to learn what it means when sales tax compliance is all on us.