You might be thinking, “Sales tax. Let them find me.”
This might not be a good strategy. In the wake of the Supreme Court’s ruling on Wayfair, it’s become the new normal for states hungry for new revenue to impose sales tax on out-of-state sellers. This has placed a heavy burden on companies who previously didn’t have to manage out of state sales tax.
They will find you
Here’s why sales tax is a real headache for any small or medium sized business. It is Complex, Overwhelming and Time-Consuming.
Understanding where you must file sales tax returns, commonly called nexus, is difficult and changes all the time. Keeping up with the latest nexus developments, the rules on what is taxable and how often those taxes are paid, vary from state to state - even within jurisdictions of some states. There are as many as 10,000 distinct taxing jurisdictions in the U.S. You just never know whose territory you’re doing business in, but they do.
Mark Schaeffner, the CFO of Gruber, a 200 person company in Arizona, recently told the WSJ that his biggest surprise with sales tax “was the amount of complexity.” But this isn’t isolated to medium sized businesses. Nicole Snow, the CEO of Darn Good Yarn, a $5.4 million company with business in 34 states, told the WSJ that “it’s quite a big lift for us…there is a lot of complexity for a small company.”
As if keeping up with the applicable jurisdictions wasn’t enough. The consequences for non-compliance are also confusing. The fear of being audited or receiving a bill for improper sales tax collection is real. Every day businesses are being contacted by state and local jurisdictions who want their sales tax revenue.
Sales tax is a lot for any company to manage. From understanding nexus, collecting the appropriate sales tax, calculating liability, managing tax calendars, and ensuring accuracy to avoid penalties and interest. This is a company’s new responsibility. To make matters worse, your nexus footprint can vary throughout the year due to sales, inventory placements, etc
Joe Wood, owner of TechWholsalecom, was recently reported saying, “It’s the biggest single moment of anxiety I’ve had businesswise in the last 10 years.”
Businesses rarely have an internal tax team, let alone a dedicated sales tax resource. This is especially true if the company didn’t meet nexus standards prior to the 2018 Wayfair decision. So what inevitably happens is that someone in the company who isn’t an expert in sales tax is forced to learn sales tax and keep up with it. Nobody wants that job.
In a recent interview with the Wall Street Journal, Michael Wittemyer, the CEO of JM Bullion, said “it was a huge resource drain on our organization.” And Kevin Mahoney, the head of FindTape.com admitted he spends a full day or two each month on the sales-tax requirements of 35 states. For companies without an in-house team, this is not only an inefficient use of time, but it’s a risky decision to not rely on an expert.
With even more changes coming in 2020 from many of the 10,000 jurisdictions, sales tax compliance is clearly a specialty. If you’re looking to focus on running your business, then remove the burden of keeping up with the ever-changing tax regulations. Consider working with TaxConnex. When you work with TaxConnex, the burden is no longer on you.
It’s all on us.