12 Sales Tax Tips for Small Business Owners

7/31/2019 12 Sales Tax Tips for Small Business Owners

1/7

It seems that sales tax compliance has never been more

complicated. To help your small business achieve greater

success and security, we oer you 12 sales tax tips. Each tip

was selected by an Avalara sales tax expert, and is designed

to help you stay on top o the ever-shiting sales tax landscape.

12

SALES TAX TIPS FORSMALL BUSINESSES

Sponsored by Avalara

Copyright 2013


2/7

Page 2 of 7. 12 Sales Tax Tips for Small Businesses Avalara 2013

1NEXUS

MANDATORYE-FILING

PRE-PAYMENT

Determine i you created nexusin any new jurisdiction over the year

Have you sent an agent or sales representative to a

new state? Delivered and installed a product in a new

state on a regular basis? Did you hire new employee

that work rom a remote location? Answering yes to

any o these questions may mean that you will have

nexus in a new state.

Nexus laws are oten quite complex and each

state is dierent. Review the laws in each new state

where you conducted business. I you have indeed

established nexus, check the states sales tax laws so

that you can accurately calculate, le, and remit your

sales tax liability.

Check i you will be requiredto pay your returns electronically.

Each state decides which payment options it oers

to businesses. Some states require businesses with

larger tax liability to make electronic payments. On

the other hand, some jurisdictions do not have the

inrastructure to support electronic payment.

Knowing the payment options and requirements

in your states will ensure that you know the correct

way to pay.

Find out whether you will be requiredto make pre-payments in any jurisdiction

Check the prepayment requirements in your

jurisdictions. A number o jurisdictions require

prepayment or larger tax amounts. Some

prepayments involve a dierent ling schedule

than regular returns, sometimes more thanonce a month.

This means that i you nd you are required

to make prepayments, and you remit sales tax

in multiple jurisdictions, you may end up with

multiple ling schedules to manage. Adjust your

calendar accordingly!

3

2


3/7


SALES TAXPAYABLE

CHECK CHECKS

Reconcile your sales tax payable account

Make time to reconcile your sales tax payable

account with your source documents. Here are

the steps:

1. Identiy the balance o your account at the

beginning o the accounting period.

2. Add the total amount billed to customers.

3. Subtract the total sales and use tax paid,

either electronically or by check, beore

timely ling discount.

4. Reconcile this amount with the current

balance o your sales tax payable account.

5. Re-class any discount or rounding balancesto the proper general ledger account.

Veriy that all checks you haveissued to the DOR have cleared the bank

While this may seem unnecessary, a misplaced

notice rom the bank or the Department o

Revenue might result in an outstanding salestax balance. Be sure to review your process or

receiving and sorting incoming documents,

especially i you employ part-time sta. Do

you know what lurks in your stack o papers

or ling cabinet?

5

4

Formula(Beginning Account Balance)

+ (Sales Tax Bill Total)

(Total Sales and Use Tax Paid)

Reconcile this amount with

your current sales tax payableaccount balance.

FILING

FREQUENCIES

Update the ling requencieson your tax calendars

The beginning o the year is a great time to makesure you know how oten youll be required to le

your sales and use tax returns. Jurisdictions typically

send notices to taxpayers several months in advance

o their ling requency changing, however i you

dont receive a notice, that does not mean the new

ling requency doesnt apply.

6


4/7


EXEMPTIONS

Make sure you understandthe taxability o new product oferings

Oering a new product? What are the taxability laws?

Identiy the unique laws in each jurisdiction where

you have nexus and plan to sell your new product.

Moving into a new state? Product taxability laws arenot consistent across state lineswhat may be

taxable in one state, may be exempt in another.

Check that customers tax exempt status isupdated and agrees with the term o theirexemption certicate on le.

The eighth tip is all about exemptions. Have any othe exemption certicates you have on le expired?

You will need to replace those exemption certicates

to continue not charging tax to your customers.

I you have changed your company name or

acquired a new company, you may need new

exemption certicates rom all your customers.

Check with each o your jurisdictions to nd out.

8

7PRODUCTTAXABILITY

TAKE CAREOF ANY NOTICES

Take care o any notices

Have you received any notices rom a jurisdiction?

You may have led and paid in a timely ashion, yet

the jurisdiction made errors when processing your

return and payment. I they do not read your

postmark properly or i they apply a payment

to an incorrect account, you will receive a notice.

Failing to respond to notices in a timely manner mayresult in a levy to your bank account, a lien on your

corporate ocers, or suspension o your business

license so you cant do business until it is resolved.

Notices should not be taken lightly!

9


5/7


ZIP CODES& JURISDICTIONS

Veriy your jurisdictions usingexact location, not ZIP code

One critical component o determining the correct

sales tax rate is ensuring you know where you have

liability to collect sales tax. ZIP codes are a web o

streets and postal routes that can be divided and

changed as areas become more densely populated

Using ZIP codes to determine sales tax rates may

prove accurate some o the time, however, using

a rate rom the wrong jurisdiction or leaving out a

special district tax may lead to huge hassles, such as

audits, penalties and return reconciliation.

Sales tax rates consist o several layers o tax: state,

county, city, local and special district taxes. The num

ber reerred to as the total sales tax rate is really the

sum o those tax rates. Each jurisdiction is dened b

a variety o criteria and can vary rom one address t

the next. It is not unusual to have multiple sales tax

rates within a single ZIP code.

ZIP codes do not identiy which tax region an ad-

dress belongs to. In act, ZIP codes do not even des-

ignate specic cities. I you base your sales tax rates

on ZIP codes, you risk applying the wrong rates and

remitting sales tax to the wrong jurisdictions.

The key to accurately identiying your jurisdictions i

to pinpoint the correct destination or location o th

transaction using data such as latitude and longitud

coordinates.

10

11DOCUMENTATION& AUDITS

Ensure that your process or keeping salesrecords will help (not hurt) you in the case oan audit

Sales tax audits strike terror into the hearts o many

small business owners. What does an audit make yo

think o? Painul, protracted dealings with state aud

tors? Dangerous drains on your business resources?

Or do you think o audits at all?

I you base your sales tax rates on

ZIP codes, you risk applying the

wrong rates and remitting sales tax to

the wrong jurisdictions.


6/7


The current economic climate has increased your

chances o being audited. With so many states trying

to balance their budgets, they are increasing their

eorts to nd unpaid tax through audits. Audits can

signicantly drain business time and resources.

But this is not a message o doom and gloom! I youtake the time now to review your process or keeping

sales records, it will go a long way towards minimiz-

ing your costs in the event o an audit (and it will

help you sleep better, too).

When you review your process or keeping sales

records, look or the ollowing:

Clear and complete inormation. Ledgers that

the auditor might want to review include:

Accounts Payable (A/P), Accounts Receivable(A/R), General Ledger (G/L), Federal Income

Tax Return(s) (FITR) and any books or records

underneath those including, but not limited

to: Purchase Orders (PO), paid bills, invoices,

contracts and customer exemption certi-

cates.

Easily accessible documentation. I you have

the above documentation available or i it can

be easily obtained upon request, the audi-

tor will appreciate the cooperation and willrequire less o your stas time.

Show the fow o each transaction. An audi-

tor must be able to ollow the trail o each

transaction and match up all o the docu-

ments pertaining to each transaction. Watch

or items like charge-backs or returns that you

may not have adequately documented. First

impressions matter! I the auditor sees that

you can eectively show what they ask or,

you will save money rom penalties you mighthave otherwise incurred or incomplete or

incorrect documentation.

I your process doesnt support the above points,

then take steps to ensure that it does now, beore

you get that audit notication.


7/7


SALES TAXAUTOMATION

Consider Sales Tax Automation

Our nal sales tax tip looks at the big picture. Sales

tax collection and remittance is not a prot center. It

doesnt make money or your business.

Thereore the name o the game is to minimize your

risk o an audit while maximizing your eciency.This will 1) save you signicant time and resources in

the event o an audit, and 2) allow you to redeploy

resources to business areas that actually increase

your revenue.

More and more businesses are turning to sales tax

automation to help them accomplish these goals.

Our cloud-based sales tax sotware, AvaTax, reduces

audit risk with sales tax services that calculate rates,

manage exemption certicates, le orms and remitpayments.

Avalara may have patents, patent applications, trademarks, copyrights, or other intellectual property rights

governing the subject matter in this document. Except as expressly provided in any written license agreement

rom Avalara, the urnishing o this document does not give you any license to these patents, trademarks,

copyrights, or other intellectual property.

Learn more about AvaTax at www.avalara.com

12

www.avalara.com

Documents

12 Sales Tax Tips for Small Business Owners