A Strategic Timeline for Implementing a Sales Tax Strategy and Process - Part 2

A job as intimidating as setting up a system to handle your sales tax obligations can be a lot easier if you have an idea how long it will take. As with most aspects of sales tax, there are no fixed answers, but we can give you an idea.

Depending 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). In part 1 of our overview, we looked at how to initially determine if you have sales tax exposure and how long it will take you to do an overview of your exposure.

Here we’ll look at timeframes for deciding where and how to register with sales tax jurisdictions, what’s involved in implementing an IT solution – and pitfalls to watch for.

Decisions and approvals 

Allow 30 days for this step generally.

Executive teams and board members are usually involved in this decision-making, and much also depends on the materiality of your sales tax exposure and objectives of your business. For example, if you’re looking to sell your business in the future or to secure outside financing, it’s more likely you’ll want to mitigate sales tax exposure before it becomes a due diligence headache down the road.

You’ll next need to register with the appropriate states and tax jurisdictions for your future – and perhaps retroactive – sales tax compliance. If you’ve had unreported sales tax exposure for a while, you may choose to register with the correct historical date and file prior-period returns.

Your mitigation methods in the wake of this decision include a voluntary disclosure agreement (VDA), where you volunteer to pay past-due sales tax in exchange for, frequently, waived penalties and a limited lookback period. Part of your decision in this case rests with how long you’ve had sales tax exposure. VDA lookbacks are usually about three years; if your past obligations don’t go back that far, a VDA may not be advantageous to you.

Implementation of a sales tax calculation engine 

This can take two or three months, but perhaps less time if you don’t have a large number of sales or sales in only a limited number of states and you understand the taxability of your products or services. In this case, you might be able to leverage your existing accounting system.

But if you have many products in many states and hundreds of invoices a month, it becomes harder to manage sales tax obligations inside an existing accounting process or even inside an existing eCommerce shopping cart. You may have to look at augmentation.

Implementing a new technology can take time, with multiple people and departments involved to bring together taxability, rates, invoicing and any usable native solutions within your accounting software. You may be able to simply integrate tax-rate subscriptions and third-party tax calculation integrations, but as your sales tax obligations and needs grow, these solutions can fall short – and you might not know it until it’s too late.

The right IT implementation could then take several months for appropriate setup. But, when done right, it will automate a cumbersome part of this process.

How long to register and start filing? 

This could be done in 30 days, but we usually suggest allowing six to eight weeks for U.S.-based operations. (Foreign companies are more challenging.)

Some states allow registration online, with the instantaneous ability to start filing with an efile account. Other states will send a physical piece of mail, meaning more time for your response.

States will also generally want to know your effective start date for sales tax compliance and which of your company’s officers will be the “responsible parties” for sales tax obligations. (Corporate structures do not shield owners and officers from sales tax liabilities, by the way.)

Next you’ll need to set up a filing process, meaning you’ll need the right data out of your system and know how to interpret that data for a variety of states’ requirements. Often, for example, if you just pull a Shopify report, it’s not clear how have to take that data and file it. It might be easy in a state like Connecticut where you have a flat rate across the whole state and just report overall revenue and overall tax. But in a state like California you have to itemize sales taxes at the local level and might spend hours analyzing the data. Home-rule states like Colorado might have dozens of independent jurisdictions, each with their own sales tax laws.

You’ll also need a tax calendar to keep track of filing dates and other details, as well as designated personnel to handle notices and other communications from jurisdictions (many of which now automate their notices, often mandating that the recipients check when notices have arrived electronically on state portals.)

For more detail on many of the above points, click on our links to specific primers. For more on creating a 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. Contact us to get started today!