Exactly how long will it take you to set up a process to evaluate and comply with your sales tax obligations? It depends on your business and where you are in your sales tax journey. It could take as little as a month or so or up to six months (or more).
Here’s the first part of a general overview of your prospective sales tax timeline for creating a process for your company – and we stress that the only certainty beforehand is that you should start sooner rather than later.
Do you need a sales tax solution?
Typically, a triggering event causes a company to investigate whether it needs a sales tax planning strategy.
The biggest event in recent memory to do so is probably the 2018 Supreme Court decision in Wayfair, which opened the floodgates to states that had a sales tax quickly creating and enforcing economic nexus thresholds. All 45 states (with Missouri being the latest, just this year) that have a sales tax now have these economic nexus thresholds set by either volume or dollar amount (typically $100,000 in a year, though this varies widely) of sales creating the obligation for a company to collect and remit sales tax.
Other events that may cause your company to consider a sales tax strategy include losing or adding a key employee; new products or a significant bump of sales into a state; a sales tax audit of your company by a state; or a merger or acquisition involving your company that creates the need to assess risk.
Maybe too you’re just tired of managing sales tax on your own, a chore that’s consistently mentioned as a worry of financial execs in our recent surveys.
How long for an exposure review?
Typically 30 to 60 days, depending on how readily available some of the transaction and revenue data are.
This review must look at nexus, and not just your economic nexus created by a volume of sales but your physical one as well. Your company could have the latter if you have an office or just inventory warehoused in a state or personnel, such as sales reps or technicians, working in a given state.
Another personnel matter that could trigger physical nexus, though the jury largely remains out on just how, are remote workers. Stay tuned on this and other nexus news, as laws constantly change in states.
You also have to evaluate the taxability of your products and services, especially if you add new ones. Tangible personal property is generally taxable in most states – with, as always seems to happen with sales tax, frequent exemptions and exceptions for certain kinds of products and certain varieties of buyers across all the states. Technology and telecom services and Software as a Service (SaaS) present special challenges in determining taxability. (Taxability of products and services is also a constant worry voiced in our surveys.)
Services, by the way, are often excluded from sales tax, but this is changing in more and more states. Again, stay tuned.
In Part 2, we’ll look at timeframes for deciding where and how to register with sales tax jurisdictions, and what’s involved in implementing an IT solution – and pitfalls to watch for.
For more details on many of the above sales tax planning strategy points, click on our links to specific primers. For more on creating a tax timeline in general, see our webinar “A Strategic Timeline to Sales Tax Compliance for Your Business.”
Every business is different and has unique needs. You could be up and running in two months or you could be looking at six months or more. It all depends on your unique situation. us to get started with your sales tax strategy today!