Do you keep an eye on the multitude of policy updates for transactional tax compliance laws? It’s hard to keep up but luckily, there are ways to streamline your business that makes dealing with sales and use taxes much more efficient.
Taxes are a necessary evil. Whether you believe in the good they do or not, you still have to pay them and keep up with transactional tax compliance laws or risk legal consequences from your rebellion. Many large corporate taxpayers suspect the possibility of a sales and use tax audit but what happens to the small-to-medium business owner when the IRS comes knocking at the door?
If you keep your business records in good order, you’ll have nothing to fear from an IRS visit. Other than a mild inconvenience, providing orderly documents on request should stave off any deeper investigation. However, if you have failed to keep your transaction history documents in an easily accessible order, you’ll soon have a bigger headache on the way. There is no way to know exactly what triggers a sales tax audit. Other than a specific event throwing a red flag for the IRS, however, there may be some key factors to be wary of. These include a dramatic increase in sales, an out-of-proportion level of exemptions/deductions vs income, past audit history, being self-employed, and if you’re in a manufacturing or cash heavy industry.
To keep yourself prepared, we recommend you take on these seven calculated business tasks to stay on top of transactional tax compliance.
Streamlining your business for transactional tax compliance laws will help avoid audits!
1. Understand your nexus obligations.
Nexus is a confusing tax concept that isn’t always as clearly defined for sales tax as you wish it would be. It’s based on your company’s sufficient physical presence and is basically used to explain if you have a connection to and are liable for collecting taxes on sales in a state. Keeping up-to-date with nexus and transactional tax compliance laws is important. Recently, there have been policy updates to include distribution, affiliate marketers, independent agents, and some remote sellers in nexus laws. Non-compliance penalties are no fun but you can easily avoid them by partnering with an eCommerce software that features a qualified 3rd party company to work with. Don’t forget that ultimately, you are responsible for any errors made.
2. Keep an eye on policy changes regarding tangible and intangible sales tax.
We all know that almost all sales of Tangible Personal Property (TPP) are taxed. However, many states have made changes that put services and other intangible sales under their tax laws, as well. Keep your accounting systems current on these ever-changing expectations to ensure your business tax reporting on the right path.
3. Look for online tools that correctly calculate taxes for your business.
Unfortunately, calculating sales tax isn’t as easy as punching in a zip code. Tax rates vary even within zip codes so you’ll need to find an online tool that utilizes geospatial mapping (think Google maps) to get the most accurate sales tax codes for your sales and shipments. If your shopping cart software doesn’t have the newest technology found with the geospatial tax calculation, try a 3-party add-on like Avalara for automated sales tax compliance. These types of add-ons will help you manage the many changes in transactional tax compliance laws.
4. Know who has to pay sales tax and who is exempt.
Some non-profits, governmental agencies, charities, educational entities and religious organizations may qualify for a sales tax exempt status. This is all dependent on specific jurisdiction tax laws but it’s up to the taxpayer to verify and keep their customer’s status and eligibility on file. This includes tracking their expiration and renewal dates!
5. Understand what is needed to properly remit sales tax.
Remitting sales tax is a complicated and confusing process for many SMB businesses. Each jurisdiction you pay out to will have different filing dates, multiple forms, and possibly, unique formats. If you deal with multiple locations and nexus, having a system in place to help you deal with transactional tax compliance laws will significantly reduce the chance of missing important forms or dates.
6. Keep Records that are clear and consistent to prepare for audits.
Sales tax audits are no fun and though the tax paying business owner will occasionally win, the majority of cases end up on the side of the state’s estimate of what was previously owed. To avoid this type of devastating blow, collect sales tax properly and keep your records in excellent order. This means all invoices and supporting documents should be numbered and ordered chronologically, with any miss in the sequence being well explained.
7. Work towards streamlining your process.
There may be many ways to tackle taxes but the less stress you have to deal with, the better. To keep tax season stress in check, consider a trusted and cost-effective alternative that will work all year for you, such as outsourcing and automation. Manually figuring your own taxes takes precious time that can be better spent working on your marketing, sales, or daily tasks. To avoid this loss of time and internal resources, we recommend pairing your eCommerce software with 3rd party add-on. In the past, only well-established companies were able to hire out specialized tax assistance. Nowadays, however, it is possible to find affordable tax solutions that allow small to mid-sized businesses to benefit from a full suite of transactional tax services. From transparent sales tax transactions to accurate tax compliance to effortless reporting, an online tax system can help you reduce sales tax management issues.
8. Enjoy your extra time.
By this point, we hope you’ve decided to let the smart tax technology help manage your time and help you keep up-to-date with transactional tax compliance laws. If you have, great… enjoy your time saved. We hope you put it to good use in making more money! If you’ve decided to continue to plug away with the manual tax methods, we hope our list of smart business tasks help guide you along your way.
Working towards mastering transactional tax compliance laws should be a standard part of any company routine. Every business owner should know the basics of their nexus requirements, keep up-to-date on tax policy changes, and understand the process of their sales and use tax submission process. However, to reduce your stress, save time, and be sure to stay in tax compliance, consider an automated tax service that pairs with your current system.
There is no way to guarantee you won’t be audited so prepare with a solid tax management strategy and the technology to back it up.
Are you up-to-date with the current transactional tax compliance laws? We’d love to hear your thoughts in the comments below!
Inspired by her love of travel, Susan is a passionate supporter of eCommerce software and the idea that people should own their own internet business (so they can work from anywhere in the world). Though she currently resides in California, she is often found blogging from random beaches and teaching her kindergartner the delightful difference between ‘hola’ and ‘ciao’.
With a strong past in product evaluation, educational content, and eCommerce sales, Susan is serious about helping online merchants succeed in their goals. She loves meeting other independent business owners on the road and hopes to run into you one day… maybe in the hammock next to her!