Collecting and remitting sales tax to states and other tax jurisdictions is time consuming and can be expensive. If only somebody could help you with the costs of managing it...
Somebody can: the states and tax jurisdictions themselves.
Some states give a collection discount to help with the costs of managing sales tax. If it sounds like free money to help cover the costs of outsourcing your sales tax compliance, it can be – if your company knows how to tap these discounts in states where you have nexus.
Here’s a look at how some states handle these breaks, which are also known as vendor’s concessions or dealer’s discounts. For some businesses, these concessions won’t seem like much, but for large businesses paying a great deal in sales tax every month and for companies in certain industries (such as telecom), they could mean serious savings that could pay for the services to remain compliant in sales tax.
Tons of different discounts
Slightly more than half the states offer various discounts for sales tax filers. (It’s best you check with the individual states where you have nexus to see if yours are included.)
Generally, the breaks are small percentages of the sales tax that you collected and remitted to the state. Alabama’s discount, for instance, is 5% of the first $100 collected and 2% over $100. Nebraska’s discount is 2.5% of the first $3,000. Utah discounts local taxes as well as state.
Most tax jurisdictions mandate on-time filing and full payment of tax due, among other conditions, to qualify for these discounts. Colorado, Mississippi, Nevada, Ohio and Louisiana are among states offering a discount for prompt payment; Arizona gives a better discount for e-filers; Florida and South Carolina offer both.
Michigan offers progressively better discounts for progressively prompter payment. Virginia’s prompt payment discount depends on level of sales, among other conditions. Pennsylvania’s prompt payment discount varies by frequency of filing. In Kansas, the discount varies by tax liability.
Not surprisingly, you can’t just keep dipping into the discount jar forever. Discounts can be capped in some states either monthly, quarterly or annually.
Some states are also more generous than others with their caps: Alabama caps discounts at $400 a month, New York at $200 a quarter. Arkansas allows up to $1,000 a month. Arizona allows up to $10,000 per year. Kentucky’s cap is just $50 per month, South Dakota’s just $70.
Is this worth it?
For most states, discounts like this have been happening for many years, but there’s no promise they will continue forever. For example, Utah recently nixed a big seller discount for non-nexus remote sellers who voluntarily collected and paid Utah sales tax.
There are a lot of nuances to these discounts, but in many cases, it could be beneficial for your business to ensure you are getting them where it applies.
Let’s say your discount is 0.64% and that you remit $1 million in sales tax a year (on, let’s say, about $10 million in sales). That works out to some $500 a month in vendor concessions in your pocket. That number differs a bit in such industries as telecom, which gets other discounts as well, and depends heavily on such factors as timely filing.
Any way it works out, that’s extra money to manage your sales tax, and what better way to utilize that than ensuring your filings are done on time and accurately, by outsourcing to an expert?
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.