Top 5 Sales Tax Compliance Tips for your business

Sales tax compliance refers to the process of preparing and filing sales and use tax returns. A taxpayer is first registered to collect or pay sales and use taxes in a jurisdiction. After registration, returns should be filed and the tax should be remitted on a timely basis.

Sales tax compliance is a tricky affair. You need to learn a lot about sales tax law and also remember a lot of deadlines. Every year tax rates, statutory rules and boundaries changes. There has been legal debate over e-commerce taxation also. Therefore, every businessperson should understand how to implement safeguards and systems, monitor various statutory rules, sales tax deduction and find ways to collect and remit the right sales and use tax to the right jurisdiction at the right time.

Here are the top 5 sales tax compliance tips for businesses:

  1. Analyze the changes to nexus rules carefully

The level of connection between a taxing jurisdiction such as a country and an entity such as your business is defined by the term Sales tax nexus. The taxing jurisdiction cannot impose its sales taxes on a business until the sales tax nexus is clearly defined. The sales tax nexus laws vary from state to state and can change from one month to the next.

There have been numerous developments at the federal level and rules have changed significantly impacting out-of-state remote sellers such as e-retailers. Therefore, all businesses should watch nexus laws closely.

What you should do?

  • Review your current nexus and identify applicable rule changes

  • Make sure your business is registered in states where it’s required

  • Find out if your business has unknowingly created nexus in a jurisdiction (traveling sales people that physically enter a state to conduct business, using contract labor, owning or leasing real or personal property in a state or taking part in the trade shows)

  • Avoid practices that can put you at risk for audit (out-of-date rates and rules, you fail to recognize new rules that create remote seller nexus or use error prone manual processes for managing unwieldy sales and use tax laws and rates)

  1. Don’t ignore the consumer use tax

Sales tax is where the seller collects and remits. But when the buyer or the user collects and remits, it’s called use tax or consumer use tax. Sometimes the purchaser is a business, such as a manufacturer or a distributor, buying goods outside the state or online, to use, or consume as TPP (tangible personal property). Use tax is also paid when a business withdraws goods from inventory for its own use, if sales tax was not paid on those items at the time of purchase. A business needs to self-assess how much use tax it has accrued and pay the amount to the state and/or local tax authority on a tax return.

What you should do?

  • Develop a written use tax policy

  • Avoid practices that can increase the risk of audit (consumer use tax is not accrued, purchased inventory is used for resale for the company’s own use without remitting sales tax or use tax)

  • Understand changing exemption certificate rules

Businesses should take note of tracking and filing exemption certificates.

What you should do?

  • Creating an audit trail for certificates

  • Update the product and service exemption rules in each jurisdiction in which you are doing business

  • Generate an exemption certificate summary report

  • Avoid exemption certificate-related practices that might increase the risk of an audit (inability to generate a summary report quickly; inaccurate, incomplete and missing certificates or expired certificates)

  1. Know when, where, and how to remit sales and use tax returns

It is very important to know which form to use, where to file, and what to include in your returns. Companies working hard to accurately track and update changes in sales and use tax rules, boundaries, and rate changes also fail to remit their liability correctly. You can even go for some software to get this done.

What you should do?

  • Review if there has been any change in the filing schedule

  • See whether the states where you have to remit sales tax have implemented new e-filing laws

  • Avoid the filing errors that might increase your risk of an audit (failure to prepay if required, late payment or payment to incorrect jurisdictions)

  1. Get help

Additional resources that can help you:

You can also see how other businesses are dealing and utilize their experiences and solutions.

About RJ Frometa

Head Honcho, Editor in Chief and writer here on VENTS. I don't like walking on the beach, but I love playing the guitar and geeking out about music. I am also a movie maniac and 6 hours sleeper.

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