The importance of Documenting Your Sales Tax Compliance Process
Sales tax compliance is riddled with risk. Failure to comply with the applicable sales tax rules...
|What is Sales Tax Compliance, And Why Is It Important|
|When Do You Need Outsourced Sales Tax Compliance Services|
|Why Outsource Your Sales Tax Compliance Process?|
|Sales Tax Services to Outsource|
|Nexus Reviews / Identifying Sales Tax Obligations|
|Voluntary Disclosure Agreements (VDAs)|
|Sales Tax Registrations|
|Filing Sales Tax Returns and Remitting Payment|
|Jurisdictional Notice Monitoring|
|Get the Help You Need With TaxConnex|
The importance of sales tax compliance for businesses is something that many people don't fully understand. Compliance with sales tax is necessary to avoid financial penalties, interest charges and comply with state and local laws. Understanding when and where you need to collect sales tax, how to determine the sales tax due, determining which exemptions apply to you, where to register for sales tax, and filing the applicable returns are all crucial parts of understanding what you need to do.
Sales tax is a tax on the sale of most goods and some services. The purpose of sales taxes is to generate revenue for state and local governments. Sales taxes don't apply to all transactions, though, typically items to be taxed are tangible personal property (TPP), but even that can change per state. Furthermore, certain non-tangible items are also subject to sales tax, especially in the digital world, where digital goods and software are subject to sales tax in many states. It is important to understand the taxability of your products and services to comply appropriately. It is also important to understand where you have an obligation to collect sales tax. It only applies to where you have a substantial connection to a state or taxing jurisdiction. Understanding this connection (referred to as nexus) is another key to your compliance that must be monitored and understood.
Many businesses manage the complexities of sales tax in-house. Still, it can be a bit much to remain compliant for businesses without a specific tax professional on staff or the ability to keep up with all the tax changes and their other job priorities. Outsourcing to a sales tax service provider could be your solution!
These services help by eliminating the extra work of sales tax compliance from your plate because it takes care of all the details for you, giving businesses and financial professionals one less thing to worry about.
If you're tired of worrying about managing sales tax compliance on your own, then an outsourced sales tax provider may be your best solution. Sales tax service providers perform tasks designed to help you understand and comply with the sales tax laws that apply to your company by managing any sales taxes you collect and ensuring you’re always on top of any updates or regulation changes without having to worry about them yourself.
There are many benefits to outsourcing but below are some key reasons many businesses decide to outsource sales tax compliance:
Nexus is defined as a business or entity’s connection with a state or taxing jurisdiction. Once a business establishes nexus, they are responsible for collecting sales tax on their taxable sales. Having a physical office or an employee based in a particular state is a clear-cut example of sales tax nexus or a physical presence. However, many more subtle activities could also trigger physical nexus that could represent a risk to your business, including inventory stored or contractors utilized. This is why having a good understanding of the rules and having a periodic nexus review is so important.
Additionally, the U.S. Supreme Court ruling in June of 2018 in the case of South Dakota vs. Wayfair paved the way for states to compel remote or out-of-state businesses to collect and remit sales tax even when they do not have a physical presence. This is often referred to as economic nexus. Economic nexus can be triggered based on revenue or transactions into a state, and each state can set their own criteria that establishes nexus.
Outsourcing nexus determination can be a huge relief to workers trying to manage this on their own. Finance teams don’t always have access to customer ship to locations to accurately have visibility into where sales are being made. Add to this the continually changing nexus rules, and it’s a lot for someone not experienced in the matter to keep up with.
Taxability is the next step in identifying your sales tax obligation. If your products and services are not taxable, you do not have a sales tax obligation, even if you’ve established a nexus.
Taxability Reviews are important because taxability rules differ widely by state, like sales tax nexus. There are over 10,000 taxing jurisdictions, many of which have unique rules and interpretations of taxability, making taxability decisions tricky. With new product launches and acquisitions, you need to know what's happening across multiple states.
By outsourcing this function to a trusted sales tax services provider, you can leverage an expert to review the taxability of your products and services as needed, especially as laws change or new products or services are added to your business.
If you discover you have a sales tax obligation and were previously not complying, you may have previous exposure that could be quite expensive if identified under audit. A voluntary disclosure agreement (VDA) is a legal means for taxpayers to self-report back taxes owed for income, sales, property, and other taxes. There are two main qualificiations for your business to be accepted into a VDA program. You cannot have already registered in the state, and the state cannot have already contacted you for an audit or for questions about your sales/use tax exposure. Benefits of a VDA range from a waiver of penalty to a limited look back period, but it's not right for everyone.
Having a sales tax expert look at your exposure and determine how far back it goes and weighing your options in a VDA or other means for remediating your sales tax exposure can save you a lot of money in the long run. Outsourcing this function can save you time and money while giving you peace of mind to set yourself on the right path towards sales tax compliance.
Generally speaking, sales tax registrations refer to the authorization to collect sales tax in a particular jurisdiction. A business needs to be registered within a state or jurisdiction comply. They are typically completed at the Department of Revenue within each state. They can take quite a bit of time and effort to complete, especially if you are registering in multiple states at once. Knowing which type of tax to register for can be tricky as well. Do you register for sales tax, seller’s use tax, or consumer’s use tax? Many outsourced sales tax providers do not manage sales tax registrations or only work with states that are part of the Streamlined Sales Tax Project (SSTP), but TaxConnex can help manage all your state and local registrations, adding one more thing you don't have to take care of yourself.
The filing process is often seen as the easiest aspect of sales tax, but there are many nuances, and if not done correctly, it can cause hefty fines for your business. TaxConnex handles this for you so you can spend your time on other important aspects of your business. We prepare your sales and use tax returns, submit them electronically or by mail, remit payment to taxing jurisdictions, prevent issuing notices, reconcile the general ledger accounts associated with the filings, provide customized reports as needed, and offer ad hoc guidance as needed.
States and local jurisdictions often send you notices. These can come by mail, show up in your email inbox, or simply be posted to your e-file account on the jurisdiction’s website. If no one is monitoring these things or designated to respond as needed, you could miss deadlines, errors, or needed fees. (Software solutions are not checking your e-file account for notices.) Notices aren’t necessarily a bad thing, it’s just the way jurisdictions communicate with you. Monitoring and respectively responding to notices is an important piece of the compliance puzzle.
Don’t have time to have someone regularly monitor these things and adjust your processes accordingly? That’s why outsourcing is a great option. Ensure that the provider you pick has notice monitoring and resolution as part of their services. With many software companies, this is not included and falls back to the business to manage, respond and update the software with needed changes such as a change in filing frequency.
Sales tax audits can represent a significant distraction to any size business. Audit preparation, the actual audit, answering questions, and negotiating an outcome can take up a lot of time that you could have spent on other activities. That’s where audit management comes in
There are many benefits to outsourcing audit management services and having a sales tax expert be your point of contact during an audit.
Outsourced service providers can help identify gaps or risks during pre-audit reviews, ensure the right documentation is available for the auditor, manage the audit process, and negotiate as needed to get the best outcome possible for your business during a sales tax audit.
As you can see, there are many benefits to outsourcing sales tax services. A reputable service provider makes sure that your company complies with state and local laws. They also keep you from incurring hefty fines associated with non-compliance. Sales tax is a lot to keep track of on your own; it's best if you can look for an outsourced sales tax service provider who already provides these services, like TaxConnex.
It's time to contact the experts. Get in touch with TaxConnex at 877-893 5804 or submit a contact us form to learn more.