Know Where You Owe: 4 Tax Compliance Offenses You Might be Missing

August 7, 2015

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When it comes to sales tax compliance, ignorance definitely isn’t bliss. Proving you don’t need to collect tax can often be more difficult and time-consuming than proving you do. Should the state express concern about exempt sales, claiming “I didn’t think I owed sales tax,” likely won’t save you from an audit.

A smarter strategy is to be aware of where you might have tax compliance obligations and how it impacts your business. Here are four of the most common compliance rules that will likely qualify for your online business

1. Exempt Sales

Even if you don’t sell directly to consumers, you may still be part of the transaction through a supply chain. As such, it is your job to reassure the state that you are exempt from collecting tax. This proof is typically in the form of an Exemption Certificate, issued by each individual state. Depending on your business, you may be responsible for both issuing and collecting certificates. The proper application of each exemption to each sale is critical. Without proper documentation, auditors could determine that you understated or improperly exempted taxable sales and that could cost you.

2. Use Tax

Use taxes are meant to minimize unfair competition between sales made in and out of state. Knowing when they are owed can be tricky. If your business purchases goods from another company within the same state, sales tax is owed. If your company buys goods outside your state or online, you don’t pay sales tax, but you are required to pay consumer use tax for the storage, use or consumption of tangible personal property (TPP). Companies are responsible for self-assessing when use tax is accrued and self-reporting on tax liabilities.

3. Online Sales

With click-thru nexus laws, also know as “Amazon” tax laws, yet to pass in the legislature, many companies think they don’t owe sales tax if they sell online. That’s often not the case. Many states are now requiring online sellers to collect sales tax. The way you deliver goods sold online can also impact your tax obligation and trigger nexus for your business.

4. Sourcing Rules

Sourcing rules govern which state dictates the taxability of a particular sale. Intra-state sales (those made within a single state) follow the taxing rules for the seller’s location or “ship from” address (origin sourcing). Conversely, inter-state sales (those made between states) bases taxability on the customer’s location or “ship-to” address (destination sourcing). If you do business in multiple states or operate as part of a supply chain, this can get complex quickly.

In all, it’s highly likely that sales tax touches your business in some way, even if it’s just to prove you don’t owe it. Failing to do so, could cost you — even as much as $ 90,000.

Automation is a smart, easy and affordable way to ensure you’re in compliance and protect your business against risk, whether you need to collect sales tax or not.

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