Sales tax laws are established by the jurisdiction in which you conduct business. States declare different sales tax amounts and guide the collection and payment of taxes within their borders. They may declare specific items tax-free while others are assigned a “sin tax” to discourage use. It’s up to you, the small business owner, to understand the laws regarding sales taxes and to comply with them.
Keeping Abreast of Sales Tax Changes
One challenge that many small business owners face is keeping up-to-date on sales tax changes. Laws can and do change, and although most major shifts do not occur frequently, even minor ones can impact your taxes. These tips will help you keep abreast of sales tax changes and help you report taxes accurately.
- Check your nexus: Nexus laws determine whether or not your business has a sufficient physical presence in a location to warrant collection of sales taxes. At first, you may assume this means opening a physical location. However, hiring a full-time sales person in another state or opening a warehouse in a state different from your physical operating location may provide enough basis for nexus within other states, subjecting you to taxation laws in the secondary and tertiary states. Because states set the nexus requirements, you must consult with your state department of taxation’s laws to determine if nexus has been established. It is a good idea to do this annually to ensure that you are still in compliance with the law.
- Review taxable products and rates: States also determine which products are taxed and at what rate. Learn your own state’s rates, and set them up so that they are automatically billed in your systems. If you establish nexus in other states, you must set up separate tax profiles for those states and specific goods so that they are taxed correctly.
- File promptly and check your e-filing status: Filing promptly, before the deadline, ensures that you avoid costly penalties and fines for late payment. Many states now require e-filing, so be sure you have signed up for the appropriate e-file account to use for your tax filings.
- Check your bank account: Those who pay sales taxes by business check should check their bank accounts to make sure that the checks have cleared. Checks can still get lost in the mail. Consider e-checks to ensure payments are received and documented electronically.
- Maintain accurate records: Receiving notification of an audit is daunting, but if you maintain accurate tax records, you will weather the auditing process a lot better than someone without such records. Use a simple, computerized system such as Avalara to establish accurate recording of taxes, and keep backup copies of your records for several years. In the unlikely event you receive notification of an audit, you will have the information available to swiftly respond to the auditor’s requests for information.
ASI offers tax software through our partner, Avalara. These “add ons” integrate with your Sage 100 systems to help you collect and manage sales tax and other tasks.
If you sell numerous products and services to vendors or customers in multiple states, it may be time to automate your exemption certificate process. Contact us to learn how we can help you automate sales tax integrated with Sage 100 or Acumatica.