Time constraints surrounding sales and use tax

Your online business is painfully aware of tax deadlines for income, payroll, property and other local taxes. Sales and use taxes have their deadlines, too – a dizzying number to follow, potentially with bad consequences if you miss even one.

A lot of complications

Currently, sales tax across the U.S. has many deadlines, often every month – but not on the same day for every business or state. Returns (with remittance of sales tax you collected) are typically due monthly, quarterly or annually and usually set when you register, but may change periodically. Some states have more unusual frequencies, including semi-annual and bimonthly.

Other factors can affect due dates, such as holidays, state furlough days and natural disasters. Some states have a flat sales tax rate that applies throughout the state, resulting in a simple sales tax return. Other states have local taxes reported on the state return. Still others have home-rule jurisdictions where separate returns may need to be filed at the local level.

Additional possible problems:

• You may need to file only annually, or you may have to start filing the minute you register.
• Different states may have different filing requirements for in-state and out-of-state sellers.
• In some states, you don’t have to owe tax to incur a filing requirement (aka a “zero-due” return).

Changes in deadlines are often sent via notices, documents that have their own deadlines for your response. Ignoring a notice can put you and your business in hot water, opening the door to additional penalties and fees.

Other correspondence from jurisdictions can include notifications of law and tax rate changes, blank tax forms, account changes and inquiries regarding previously filed returns. Much of this communication requires only minor attention on your part, but some require scrutiny – and potentially action on your part, usually with a deadline.

Why no uniformity in sales tax requirements? Since there is no federal sales tax (nor is one likely soon), sales tax is left up to states and even smaller, more-local jurisdictions.

How to handle

You and your online business face a complex tax situation that carries hefty fines for even innocent mistakes. What should you do?

First, you need an accurate tax calendar telling you where you’re registered for sales tax purposes, the filing frequency of each return, the due date, login credentials, method of filing (e-file or paper) and any other information specific to the jurisdictions where you have nexus.

Our third annual survey of financial professionals across various industries showed that many face sales tax challenges related to these filing deadlines. More than half (58%) of companies responding used internal resources and existing accounting systems to prepare and file sales tax returns.

Should you outsource?

If this task is something you or your team can no longer keep up with, it may be time to outsource or change providers. Another recent TaxConnex survey of financial professionals found that more than a third of businesses outsource the preparation and filing of their sales tax returns to software providers rather than service providers. Be cautious as these software providers have gaps in their overall offering.

For example, these same businesses that rely on software providers to file their returns, when asked how they were managing jurisdictional notices and communications, only 21% stated their software provider also managed their notices. Out of all the sales tax tasks we asked about, 56% of respondents say they rely on internal resources to manage notices and jurisdictional communication.

Keep in mind that these software providers are not proactively managing your notices and updating your tax calendar. Many businesses still find themselves keeping up with this information and having to reach out to their provider when notices arrive for changes to deadlines.

Providers of sales tax management often say they’ll help you with calendars and responding to notices, but this service often requires that you put in a support ticket. Always remember to budget for the time it might take to fulfill your request: It’s essential that you have someone dedicated to this to ensure you meet all your deadlines.

Relying on a service provider who truly takes over the process for you, including managing your filing calendar and responding to notices, you’ll be able to focus on more important part of running a business. Contact TaxConnex to learn what it means when sales tax is all on us.