6 US Sales and Use Tax Compliance Considerations that Foreign Based Businesses Can’t Forget!

Selling your products/services into the US opens a sizable range of sales opportunities, but it could also open the door to significant complexity in managing your US sales tax obligations.  Once you understand when you have established a US sales tax obligation and know your products and services are taxable, it’s time to set up a filing process to ensure on-going compliance.

In establishing a compliance process, you must consider multiple due dates including the 7th, 10th, 15th, 20th, and end of month; multiple data sets from differing sales tax calculation solutions; managing and responding to notices; and addressing various payment options including ACH credit, debit, and physical checks for many local jurisdictions.  This is why it’s hard to rely on software to manage everything.  There still needs to be a physical person to monitor, update and respond to different aspects of sales tax that a software can’t do on its own. Some specific areas of compliance to consider are:  

• Tax Data Reports - In a perfect world, all of your sales tax calculations will be managed in one system, and you will be able to produce a single report each month that provides details with all of your sales and use tax liabilities. However, the reality is that businesses grow, they acquire other businesses, they change accounting systems, they launch new e-commerce platforms - all resulting in different sales tax processes. Be sure you have a process to gather the applicable data each month and reconcile this data to your general ledger before you start the filing process. 

• Format and Payments: Filing returns in paper format is still used by states for some level of taxpayers, but most states now use electronic filing for sales and use tax returns. The most common approach taken by states is web-filing, in which you log onto the state’s department of revenue website and input the required data into a web form. In some cases, you can import your data into the web form. 

Payments are generally due on the same date as the return. Many states allow or even require electronic payment. If you are required to pay electronically and send a check, penalties could apply. 

• Maintaining a Tax Calendar: You should maintain a tax calendar that reflects where your business is registered for sales tax purposes, the filing frequency of each return (returns are typically due either monthly, quarterly, or annually), the e-file credentials (states often require an online filing with an electronic payment) and other state-specific information. (Remember to update this calendar as filing requirements change or you register in additional state or local jurisdictions.  And if you miss a filing frequency change from quarterly to monthly and a return is late then you will be assessed penalties and interest.) 

• Notice Management – Jurisdictions enjoy sending you mail. Some of this mail may be informational but still critical. For example, you may receive a notice of a change in filing frequency from quarterly to monthly. If you miss this change, and skip two monthly returns, you will be penalized. Additionally, you may receive a deficiency notice that requires you to correct an issue. These deficiency notices generally have very tight time frames by which you must respond – 5 days, 10 days, etc.  Many of these notices are posted within the states’ e-file sites where only a physical person will be able to identify their existence – software won’t search the e-file sites to identify open notices. 

• Tax Data Reports - In a perfect world, all of your sales tax calculations will be managed in one system, and you will be able to produce a single report each month that provides details with all of your sales and use tax liabilities. However, the reality is that businesses grow, they acquire other businesses, they change accounting systems, they launch new e-commerce platforms - all resulting in different sales tax processes. Be sure you have a process to gather the applicable data each month and reconcile this data to your general ledger before you start the filing process. 

• Controls – If you are a public company or have various financial covenants, you will have to thoroughly document your process including the various controls in place that ensure the process is executed effectively each month. These controls will also have to be reviewed periodically and tested to ensure proper operation. If you have other business activities on your plate and potentially won’t have enough time to manage this all by yourself, you may want to consider outsourcing the sales tax compliance process.

Managing all of this alone can be a lot for any size business, especially for one not based within the US. The amount of effort to keep up with tax rules in your own country is one thing, but adding the US and their complex and changing rules can cause a tax team a lot of stress. It’s imperative to have someone with the time and expertise to manage your sales tax obligations to ensure compliance in the event of an audit, non-compliance can lead to hefty penalties and fees for a business, or even you personally.  

By outsourcing your sales tax obligations to a US sales tax expert, you can get sales tax off your to-do list and be able to ensure your compliance.  If you’re looking to talk to a US sales tax expert, get in touch.