Understanding Your Sales & Use Tax Exposure

TaxConnex offers a multitude of advisory services to ensure you are able to maintain your compliance. We can help you understand your obligations and identify gaps in compliance. We take a diagnostic approach to understanding your sales and use tax obligations and give our advice for a best course forward. Then you can decide whether to manage internally or tap into our hands-on services for a greater sense of security.

If you are a start-up business selling tangible personal property, understanding where you have an obligation can be relatively simple, use the below information to guide you in determining your sales and use tax obligations.

Evaluate Where You Have Nexus

Sales tax nexus is a term used to describe the connection or link between a business and a state or local jurisdiction that creates a tax obligation. Without nexus, you do not have a legal requirement to collect or remit sales tax in that jurisdiction. Nexus is determined by either a physical or an economic presence.

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Are Your Products/Services Taxable?

Once you've established where you have nexus, you must evaluate if your products/services are taxable. Unfortunately, like nexus, this can vary by state and jurisdiction. If you sell tangible personal property, this can be rather simple, but other industries like software, and services are quite a bit more tricky.

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Economic Nexus Map

Evaluate where you've met economic thresholds in our economic nexus map! Review the thresholds for each state and gain insight into whether they evaluate thresholds based on gross or retail sales.

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Key Steps to Compliance

What's next after you establish where you have a sales tax obligation? Review the material to the right to understand key pieces of a compliance process and steps to take to become compliant.

Navigate Prior Period Exposure

If you haven’t been collecting and remitting sales tax but have a responsibility to do so, it’s very possible you’ve developed some prior period exposure. The longer you’ve neglected your obligation, the larger the amount owed (and penalties and fees) will be. But, there are options.

It is important to estimate and understand what your prior period exposure is and determine if you should register and comply prospectively or utilize several mitigation options.

Learn more about our VDA & Mitigation support here!

Register in State & Local Jurisdictions

Sales tax registrations are completed at the Department of Revenue within each state. As part of the registration, you are provided a sales tax id number and are granted the authority to collect and remit sales tax in that particular state.  Similar to nexus and taxability, each state has its own set of rules for which companies must file based on certain filing frequencies and methodologies.

Sales tax registrations can be challenging if you‘ve not completed them before. Most registrations are now done online.

Learn more here!

Determine Out to Get Rates On Your Invoices

Getting the right sales tax on your invoice is a pivotal step in managing your sales and use tax obligation.

To calculate the applicable sales tax, two key factors are essential: tax rates and taxability rules. While additional considerations like situs and exemptions may apply, rates and rules form the foundation of the process. In some cases, managing these factors without sales tax calculation software is entirely feasible. For instance, if you’re selling tangible personal property (which is generally taxable) in a few jurisdictions with readily accessible tax rates, specialized software may not be necessary.

However, it is considerably more complicated if you are selling tangible personal property across the country where you will need to understand all the current tax rates where you have a customer/client. For this, you can subscribe to a tax rate service that allows you to lookup current sales tax rates, upload the tax rates into your invoicing/ERP system and your invoicing/ERP system will calculate the tax. This can work very effectively with minimal upfront or ongoing cost.

Learn more about our solution for rate calculation here!

Understand Filing Deadlines

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Maintain a Filing Process & Accurate Records

Filing and remittance is often thought to be the "easiest" step of compliance. But that is far from the truth. The amount of steps and continual changes continues in your filing processes. There are multiple deadlines for sales and use tax returns, they could be due monthly, quarterly, bi-annually, or annually, and this will differ by taxing jurisdiction. Filing and remittance solutions or processes will need to accommodate multiple data files and formats, e-file and paper returns, electronic payments and checks, notice management and resolution, tax calendar updates, and an audit trail to minimize penalty assessments.

Learn more about our filing & remittance solutions here!

Taxability of SaaS

Software and SaaS businesses face quite a bit of complexity when it comes to determining their taxability. States and jurisdictions are continually changing their rules and definitions of what is taxable or not. Check out our map of states that tax software and SaaS!

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Still have questions?

TaxConnex has both consulting and compliance service to alleviate the burden of managing your sales and use tax obligations. Often businesses just starting out can manage complexities on their own but as they grow, an expert can be critical.

I need help!

TaxConnex Team Members involved themselves in our business to get a true understanding of the nuances of our industry, and they provided a key contact who feels like an extension of our staff.

The main value I see from TaxConnex, is peace of mind with managing our sales tax obligations and knowing we have best-in-class processes in place to show the various states and jurisdictions that we want to be compliant.

I would highly recommend TaxConnex to any size company, small or large. TaxConnex provides personalized services for a good cost value.

“TaxConnex doesn’t overcomplicate things for us, they simplify them. Being able to work closely with [a dedicated practitioner] rather than multiple individuals who don’t understand your business is very helpful. TaxConnex takes a lot of weight and worry off us.”

“Before partnering with TaxConnex, our process was completely manual with printed reports and online filing, which is a big factor for why I was hired. We wanted to ensure we maintained compliance throughout our expansion while also transitioning our system to being completely paperless.”