With thousands of rate, rule, and boundary changes every year and an epic legal debate over e-commerce taxation, sales tax has never been more complicated. Yet at the same time, cash-strapped states are hiring more auditors and looking to make sure they collect every penny due to them. Those two factors combined make you more susceptible than ever to a negative audit.
Here are ten tips to help you stay on top of the ever changing tax landscape and minimize your audit risk:
Determine if you’ve created nexus in any new jurisdictions in the past year. Nexus laws vary from state to state and can change from one month to the next. Something as simple as hiring a remote sales representative can create nexus.
Check to see if you’re required to file electronically. Some states require it on larger payments, while some jurisdictions aren’t even equipped to receive electronic payments. Make sure you know how and where to remit so you don’t miss a deadline.
Find out if any jurisdictions you file in require pre-payment. Some jurisdictions require pre-payment of larger tax amounts. Be sure to manage your calendar so all filing happens on schedule.
Verify that all checks you’ve issued to the DOR have cleared. An uncleared check may indicate a misplaced filing and therefore an outstanding sales tax balance.
Update filing frequencies on your tax calendars. If you file in multiple jurisdictions with varying filing schedules, this can be particularly complicated. Review your calendar at least annually to make sure you have the correct timing.
Make sure you understand taxability of new products you offer. Not only can the taxability differ from your existing product lines, but it can differ from state to state.
Verify proof of customers’ exempt status. Make sure that you have current, non-expired proof of exemption for anyone you’re not charging tax - preferably in an electronic format with a backup procedure. In an audit, you could be asked to produce proof of exemption on historical transactions, so good archiving procedures are a must.
Take care of any notices. Even if an error was made by the jurisdiction on your filing, failure to respond to notices promptly can lead to a many negative consequences, including a suspension of your business license.
Verify jurisdictions based on exact location, not zip code. Zip codes are right part of the time, but it is not unusual to have multiple jurisdictions (and therefore multiple rates) in one zip code. To be truly accurate, you need a system to identify rates at the rooftop level.
For full details on these tips plus two bonus tips, please download this free whitepaper:
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