Hard to believe if you’ve ever dealt with sales tax jurisdictions, but they will actually give you a break on paying your sales tax in the form of vendor discounts and compensations.
These tax discounts can also add up for large businesses that pay a great deal in sales tax every month to states where they have nexus, sometimes even more than paying for the services these companies use for sales tax compliance.
It pays to know about these vendor discounts – and how to make sure you don’t unintentionally give them away.
A galaxy of discounts
Most taxing jurisdictions mandate on-time filing and full payment of tax due, among other conditions, to qualify for these sales tax discounts (not all states offer these breaks, by the way).
Generally, the breaks are small percentages of the sales tax that you collected and remitted to the state, perhaps 1% or even less, though Colorado and Georgia have relatively generous discounts. South Carolina gives a big break to retailers who aren’t required to collect and remit the state sales but volunteer to do so. Colorado also favors small businesses with its discount, Kansas gives special discounts to retailers in certain other states and jurisdictions.
States usually cap the amounts and might use complex formulas to determine vendor discounts based on the amount of sales tax collected and remitted and, as in New York and Pennsylvania, among other states, filing frequencies. Pennsylvania, like many states, also offers its discount for timely filing.
Some states, like Michigan, Kentucky and Tennessee, alter discounts beyond a certain percentage of the tax collected. Alabama also offers tax discounts on other types besides sales tax.
Check with a state’s individual department of taxation if you have follow-up questions on their specific programs. Conditions can change frequently – as often happens in the world of sales tax.
The CSP question
One potential issue with vendors discounts is certified service providers (CSPs).
A CSP is an agent certified under the Streamlined Sales and Use Tax Agreement (SSUTA) to perform all the seller's sales and use tax functions, other than the seller's obligation to remit tax on its own purchases.
A CSP is designed to allow a business to outsource most of its sales tax administration responsibilities. CSP services are provided free to sellers in the Streamlined Member states in which the seller is a “CSP-compensated seller.”
(Regarding providers, the Streamlined Sales Tax Governing Board says it has certified Avalara, TaxCloud, Sovos and Accurate Tax.)
One question a company needs to clarify: Does the CSP keep any vendor discount? You don’t want to surrender money when you don’t have to – especially in the form of charges that weren’t made clear to you. If you deal with the SSUTA for your sales tax obligations, make sure to understand what will happen to any vendor discount you’ve earned
If you think you're not getting all you can from your sales tax compliance efforts, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department.