Sales Tax Management: Stop Rolling the Dice with Audits
No one likes to talk about sales tax. The fact of the matter is that if you do it right, you break even, and if you do it wrong, you lose. There’s no win to be had. Your clients won’t thank you for charging the correct amount. Your employees aren’t going to feel better about their jobs because you filed on time. Keeping up to date on your exemption certificates won’t improve your bottom line.
When companies gamble with their sales tax liabilities, there’s a lot to lose. With budget crunches the norm, states are increasingly looking to squeeze every penny the law will allow out of the tax payers. They’re expanding the definition of nexus (that no state can tax an entity unless that entity has established a minimum level of connection with that state, typically triggered by a company’s physical presence in that state) to make it harder for out-of-state companies to do business in their borders without collecting tax. They’re also hiring auditors to enforce compliance. Idaho hired 48 temporary auditors and collectors in 2011. They collected so much extra in unpaid taxes that the positions were made permanent the following year. And other states are seeing the results and following suit.
What does this mean to you? It means that for most companies, the probability of getting audited is greater than ever.
Here are five tips to help you improve your odds in the case of an audit:
Choose the right table: Make sure you’re keeping up with rate, rule, and boundary changes. Undercharge and you find yourself on the hook for the shortfall. Overcharge and you risk upsetting your clients and losing trust.
Know when you cross the line: Understand nexus rules in the states where you do business to make sure you’re collecting tax where required - and not in jurisdictions where you’re not required! There are many conditions that can establish nexus, including hiring an independent contractor or making deliveries in a company vehicle. Laws vary by state.
Keep your chips close at hand: Keep exemption certificates in a safe, but accessible place. If you’re audited, you’ll need to be able to produce proof of exemption on sales of taxable items where tax was not charged.
Cover your bets: Don’t forget about use tax. Because the auditor won’t! Use taxes can be incurred when taxes are not charged on purchases you make (i.e., purchases from out of state vendors). You are often still obligated to voluntarily report and remit the applicable taxes. Make sure you’re fulfilling the use tax reporting requirements of your home state.
Know the table stakes: Educate yourself on risk factors specific to your organization type and industry. Businesses that process a lot of cash are at a high risk for audit, as are B2C organizations.
For more on these tips plus five bonus tips, download this free white paper from our partner, the sales tax experts at Avalara: Stop Rolling the Dice with Audits: 10 ways to improve your odds at the sales tax audit table. Or contact ArcherPoint.
Avalara provides a fast, easy, and accurate cloud-based service to calculate sales and use tax; manage exemption certificates; file returns; and remit payments across North America and beyond. Learn more at www.avalara.com/dynamics