The need for quality sales tax compliance support continues to grow – especially in the small to mid-market business segment. This is due to a combination of factors including:
- States pushing the envelope relative to what creates sales tax nexus
- States being able to cross reference certain registrations
- A general shortage of resources to help manage the compliance process
Over the previous 18 months, we’ve seen an increase in states pushing an economic nexus standard for sales tax purposes.
Rather than maintaining the status quo of a physical presence standard as originally ruled in the National Bellas Hess Supreme Court ruling and upheld with Quill, more and more states are establishing economic nexus standards. I authored an Executive Briefing on this topic several months ago, but this is a moving target.
Most recently, Massachusetts introduced an economic nexus standard specifically targeting internet sellers. Some of these economic nexus standards have been legislated, others have been regulated, and in the case of Massachusetts an administrative policy was enacted. As we continue to see these standards challenged, retailers will be in an uncomfortable situation until these cases are decided. Should the retailer move forward with sales tax compliance based on these economic nexus standards or wait?
As states become more sophisticated in their ability to cross reference registrations, businesses are at a heightened risk of being identified for sales tax purposes.
For example, states now have a greater ability to cross reference a payroll registration and identify if a business also has a sales tax registration. If you register for payroll purposes in a state you should expect a letter or nexus questionnaire inquiring about your sales tax related activities if you are not already registered there for sales tax purposes. This trend will continue as states link different departments as well – for example the Secretary of State and the Department of Revenue.
When it comes to finding good talent to help manage sales tax internally, the requirement continues to be challenging.
I’ve been working in this industry almost 20 years, and from day one sales tax compliance has been a high turnover position, where junior level and clerical staff are being tasked with managing the process. As states become more aggressive, businesses should recognize that an unrecorded sales tax liability could easily be a 10% to 15% hit to their bottom line. The need for a quality sales tax resource is paramount. Recruiting, hiring, training and holding on to good talent is essential within our industry. If you’re struggling to find resources to help in this area, TaxConnex offers an outsourced sales tax department staffed with quality, professional, senior level individuals to help you manage this increasingly complex process.
Stay tuned over the coming months and years as the sales tax industry is gearing up for a significant change.