LUTZ BUSINESS INSIGHTS
4 Steps to Remain Sales Tax Compliant
CAITLIN EVERS, SENIOR ACCOUNTANT
Sales tax is an often misunderstood and hard-to-navigate area of tax compliance. Each state or governing jurisdiction has its own rules. For example, a product or service may be exempt from sales tax in one state but be taxable in another. Combine that with the continually changing legislation, and you have a big challenge. Below are four steps for remaining sales tax compliant.
1. Sign up for e-mail updates in each state where you currently file a sales tax return
Almost every state has a subscription service you can sign up for to receive important updates regarding sales tax and other related information. These updates often include sales tax rate changes, changes to taxable services or products, and e-filing system changes. Doing this will help ensure you avoid any costly sales tax mistakes.
2. Analyze your customer base
There are a few key questions that every business should consider.
- Who are our customers?
- Are they reselling the product or service we provide?
- Is our product or service being provided at our business location or being shipped directly to the customer?
- How much and where are we shipping to?
Answering these questions will provide considerable insight into potential sales tax issues.
3. Consider economic nexus at least once a year
Have you met economic nexus in any state where you currently do not file a sales tax return? Since the ruling of Wayfair, most states have adopted some sort of economic nexus legislation. While the rules vary between states generally, if you have more than $100,000 in sales in any state, you likely have a sales tax filing requirement in that state. This is where your customer base analysis comes into play. Categorize your sales based on delivery location and then see what states you’ve met the $100,000 threshold. Compare that list to where you currently file a sales tax return.
4. Discuss your findings with a sales tax professional
This is the most important step. Your sales tax professional will help you further analyze your findings to determine your risk areas and how to proceed. The next steps may include registering for sales tax in a new state, entering into a voluntary disclosure agreement program, or further monitoring.
Lutz Can Help!
Sales tax is not a one size fits all. Knowing your specific products or services, your customers and your sales are key to staying sales tax compliant. If you have questions regarding sales tax, please contact us or reach out to your sales tax professional. You can also learn more about our State and Local Tax services by visiting our website.
ABOUT THE AUTHOR
CAITLIN EVERS + SENIOR ACCOUNTANT
Caitlin Evers is a Senior Accountant at Lutz with over seven years of experience in taxation. She specializes in state and local tax matters including sales and use tax, tax incentives, and personal property tax.
AREAS OF FOCUS
- State & Local Tax
- Sales & Use Tax
- Sales Tax Audit
- Tax Incentives
- Personal Property Tax
- BA in Accounting, Buena Vista University, Storm Lake, IA
- AA in Business, Iowa Western Community College, Council Bluffs, IA
- Whispering Cedars Baptist Camp, Volunteer
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