ACCOUNTING FIRMS AND SALES AND USE TAX ADVISING: PERFECT TOGETHER?

Public Accounting Firms are constantly seeking opportunities to expand or diversify their service offerings, especially when it can result in additional revenue and at higher margins than traditional service offerings. With the advent of Wayfair, more businesses than ever find themselves with a sales tax compliance requirement – or at least questions about their sales tax obligations. How will your clients get their sales tax questions answered? Recognizing this need and your desire to remain the primary trusted advisor for your clients – providing sales tax consulting services can be a win-win for both you and your clients.

Why Now? 

Compliance work has historically been the bread and butter of accounting firms.  But increasingly, accounting and CPA firms look to expand into advisory services, becoming what the profession has long termed “a trusted advisor.” Such a role can also take a firm beyond the pricing models of flat fees or by-hour into value-added services – potentially a broader, longer-lasting and sometimes more professionally engaging moneymaker.

    Accounting firms have long moved into technology, forensics, business management and a host of other biz services. What’s next?

“It has become increasingly clear that there is one tax type in particular that has a direct and constant effect on many of the roughly 31 million small businesses … in this country,” Mark Friedlich, CPA, vice president of U.S. government affairs at Wolters Kluwer Tax & Accounting wrote on Accounting Today. “This is the sales and use tax.

“Typically, your clients already consider you to be their expert in all things tax,” Friedlich told his audience of CPAs and other tax pros. “Many may assume that if you’re not doing sales tax review, compliance and planning for them, they don’t need to worry about it.”

And that was more than two years ago. Sales tax has only increased in complexity since.

In a 2021 TaxConnex survey of financial executives’, more than a third (35%) were still trying to figure out how to manage sales tax obligations four years after the Supreme Court’s Wayfair decision.

More than one in 10 (11%) confessed to being unaware of what economic nexus is or its impact on their business – and almost two out of every three (64%) reported being less than fully satisfied with how they currently manage sales tax.

Clearly, between undetected nexus, under-collected and unremitted tax and other details, there’s a lot of room for advisory services in sales and use tax for eCommerce companies.

But how do you get started to support your clients? 

Starting a Sales Tax Consulting Practice

How will your clients get their sales tax questions answered? Recognizing this need and your desire to remain the primary trusted advisor for your clients – providing sales tax consulting services can be a win-win for both you and your clients.

How do you get started?

1. Confirm a need or risk exists within your client base

The first step is to identify the need for sales tax consulting services – whether they be within your own client base or in a market you might desire to serve. Sales and use tax can affect businesses of all sizes and in virtually any industry. You may find pent-up demand within your own clients is the best place to start. Or you may need to go looking. A deep dive into the industries you serve may show you particular businesses you should reach out to first. Software, eCommerce and telecommunications businesses are a great starting point.  But beware, telecom taxes can be quite tricky to understand. 

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2. Get buy-in from the partner/management team

For any new service offering to succeed, there must be consensus from the entire partner/management team and a commitment to supporting the necessary steps/actions. Understanding both the risk of sales tax non-compliance as well as the threat of loss to a competitor are additional incentives beyond just the additional revenue potential of adding the sales tax service.

3. Identify and secure the necessary resource(s)

Sales tax consultancy is usually split into 4 buckets. Tracking nexus (both physical and economic), understanding the taxability of products and services, mitigating exposure, and audit support.

If you don’t already have sales tax expertise within your practice, you can:

• Hire an experienced sales tax professional – While this would result in immediate credibility, it is often difficult to find a quality sales tax resource in today’s climate;
• Train existing resources – Have someone within the practice develop the knowledge base. Focus on a particular industry/client segment and a specific component of sales tax, such as nexus or taxability, and then expand the knowledge base as the opportunities necessitate. While sales tax is a niche within the overall tax ecosystem, it’s broad application to all industry segments and the nuances that exist from state to state make establishing expertise in the area challenging and time consuming; and/or
• Partner with another firm or provider with the expertise - Whether you are reselling services or referring to a trusted partner, as long as your client receives the support they need, you keep the client happy and avoid them engaging with a competitor.
  
  

Identify the Need within Your Current Clients

Accounting and CPA firms looking to expand their services into the sales and use tax niche, often have pent-up demand within their own client base. How can you easily access this demand?:

Compare the state income tax return filings to the state sales tax filings.

 If your client is filing an income tax return in a state but is not filing a sales tax return, they may have an issue. Once you have the states identified, determine if any of the sales in those states may be subject to sales and use tax. Pay the most attention to states where the sales factor for income tax apportionment purposes is material relative to total sales.

Review the sales tax payable account.

 A sales tax payable account is the most neglected balance sheet liability in the GL. Ask clients for an account reconciliation that shows the liability by state or tax return. Large balances due to any state may be a potential risk for failure to file and pay. If a client does not have a sales tax payable account but sells tangible personal property or software, how do they account for sales tax on these sales?

Review invoices for fixed assets and supplies. 

This ensures applicable sales tax was included in the invoice and paid to the vendors. Clients are responsible for any use tax on taxable property and services not otherwise paid in the form of sales tax to vendors.

Is a partnership an option? 

If you don't already have the expertise in-house, finding or training someone can take time and funds. So how do you get started today? 

A cost-effective approach to adding sales and use tax advisory services: partnering with sales and use tax experts. As businesses have found complete outsourcing a good solution for sales tax compliance, accounting firms can use such a partnership to operate advisory services – and charge the higher value-added rates that they would for tax prep and other work.

Partnering with an expert allows firms to expand offerings and remain competitive without having to do the work within the firm. 

Contact TaxConnex to learn about our referral and resale partnership options. Or just to talk about how partnering with TaxConnex means sales tax is all on us!

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