There have been a long debates going over sales tax online, and other related rules and changes. This has vaulted using sales tax compliance software to every businessperson’s list. For a business person, it has become really important to know how they must implement systems and safeguards, monitor different statutory rules, or find the most effective ways for collecting & remitting the correct sales and tax to right jurisdiction at a right time, will flummox even the compliance-minded businessperson.
So, following tax compliance tips will help to identify certain steps that your business may take to address any challenges or help you to know whether using a sales tax calculator can prove helpful. These are the starting point, for addressing sales tax compliance.
Risks of Sales Tax
There is a risk in business for not collecting the sales tax and so we decided to talk it directly. Besides property or income tax, the sales tax is the biggest source of the state tax revenue; also it is one of the frequently leveraged for filling the budget gaps. State governments are looking for their tax dollars.
Being a business owner, you are completely responsible for any sales tax linked with the products you are selling. Generally, businesses pass on responsibility to the buyers just by charging the sales tax at a time of sale; however, failing that, it is the seller who is held responsible by the local and state tax authorities.
What it means is, each dollar of the sales tax deduction that you fail in collecting is the dollar you are held responsible for by the state and the local tax authorities. Also, beyond that, late payment penalties, collection fees, and interest might be assessed as well.
At an extreme, the criminal charges might be brought in front if it’s determined that tax evasion has happened. Analyze accounts function to decide if the transaction taxes are overpaid, and resulting in the potential refunds and credits.
Determine the tax liability just by analyzing any changes to the nexus rules
Whereas most of the businesses have got the concept of sales tax nexus—a connection between the business and taxing jurisdiction needing sales tax collection & remittance —many are not aware of the dramatic changes to the nexus proposals happening at present.
There are many developments on the federal level, however, this tip mainly focuses on the current state proposals, which are at present underway or you can see the Wayfair sales tax case. Such rule significantly impacts the out-of-state sellers (like online retailers), however, all businesses must watch the nexus laws very closely.
- Important to review where you have the nexus or identify any applicable rule changes
- Ensure your business will be registered in the states where it is needed
- Determine if your business may have unknowingly made nexus in the jurisdiction: by using the traveling salespeople who physically enter the state to conduct any business, using contract labor, leasing or owning real and personal property in the state, participating in the trade shows, and other nexus activities
- Avoid any practices that will put you on risk for the audit: having outdated rates or rules, failing to understand new rules, which create the remote seller nexus, and using any error-prone processes to manage sales tax law or rates
Do not ignore the consumer use tax
Make use of the tax that is defined as the tax on the use of tangible personal property or not subject to the sales tax. Normally speaking, the purchaser owes make use of tax on the taxable items bought on which that they did not pay any sales tax and less tax than the applicable tax rate.
Not like sales tax, remittance liability lies with the buyer (business or individual). In a few cases, the purchaser will be the business, like manufacturer or distributor, purchasing goods outside the state or on the internet, to use, and consume as TPP.
Also, use tax should be paid when the business withdraws any goods from the inventory for own use, suppose sales tax wasn’t paid on such items at a time of purchase. It’s the liability of the business to assess whenever use tax will be accrued or to pay state or local tax authority the tax return.