The majority of businesses still manage their sales tax obligations with internal staff, but do they have what it takes to manage sales tax effectively?
Most businesses don’t have the internal expertise to accurately manage it in-house, especially in the current work environment where finding and keeping the best talent is difficult at best.
Sales tax compliance involves everything from determining if your company is obligated to collect and remit sales tax in a jurisdiction (aka nexus) and monitoring ever-changing tax laws to maintaining filing calendars, collecting data, and filing the correct forms on time.
The right person to manage it for your company needs a lot in their toolbox: sales tax knowledge or expertise, adaptability to keep up with rules and deadlines and thorough knowledge of your operations to know where your employees are located, new states you have sales in, traveling employees and so on.
Most businesses, especially smaller ones, don’t have or can’t afford a full sales tax department in these days of tight resources. Sales tax is typically managed by someone who has a lot of other things on their plate – but the position requires more time than most realize and special skills. We outline some of these skills below:
Understanding evolving rules and regulations. Adaptability is key here. Every business is different, so it's important to correctly apply tax regulations to a business. And the rules and regulations surrounding sales tax are constantly changing, and it requires monitoring. Not to mention there are more than 10,000 different tax jurisdictions in the U.S. Many have their own rules regarding sales tax – and all are hungry to penalize your company if you slip up.
Understanding the regulations means nothing if one is unable to apply them to specific situations and changing circumstances. For instance, the latest trend in remote work can mean your company suddenly has physical nexus in a state where the employee lives, not necessarily where your company is located. These rules can vary from state to state so you can’t assume that if you know the rules in your home state then those same rules apply to other states.
Your sales tax resource has to be highly organized to stay up to date on these and other new regulations.
Keeping track of all the deadlines. This will be another of your sales tax manager’s biggest skills. Tax calendars and due dates are not static – they change for reasons as common as a holiday or as tremendous as a pandemic or a hurricane. A sales tax manager must file all returns by the correct due date and in the correct format, as well as ensure timely payment. Failure to keep up with changing tax calendars can result in penalties and fines – or worse.
It’s also imperative that the sales tax manager stays up to date with notices from tax jurisdictions. Responding to notices and resolving any errors quickly is critical to maintaining sales tax compliance. Again, costly penalties loom if your sales manager fails at this.
The duties above, our survey said, are the source of some of the greatest dissatisfaction that executives have with their sales tax compliance. Again, excellent organization is only the starting point for your sales tax manager.
Understanding how company growth changes tax obligations. Your company is probably riding the e-commerce wave right now, and that wave is getting stronger. One group especially excited about e-commerce: state and local governments. Why? Economic nexus. Many states have survived the pandemic due in part to the sales tax from e-commerce and the sales tax filed from companies that have reached nexus thresholds in their state.
Ever since the Wayfair decision in 2018 gave states the authority to establish economic nexus standards, tax jurisdictions have been swift to define their revenue/transaction thresholds. Customers worldwide can access and purchase your products and services with one click.
As your number of customers and revenue in new states grow, so does your potential sales tax obligation. Your sales tax manager must be tuned in to these developments and have the foresight to reduce your risk down the road.
It truly is a special résumé that fills the role of a sales tax manager. Make sure to fill the job properly.
Don’t let sales tax compliance overwhelm you. Rely on sales tax experts to maintain your compliance. Contact TaxConnex to learn what it means when sales tax is all on us.