Sales tax compliance is pretty complex. In the United States, state-by-state regulations, filing deadlines, and reporting requirements make it no wonder why most companies are left with a mess unless they know what to do with it in terms of managing resultant sales tax obligations.
Whether you have a small-scale business or a large firm, understanding how to manage the liabilities that come from sales tax provisions is the most basic compliance knowledge. This blog outlines the steps that your business needs to continue in compliance with U.S. sales tax laws. We will also discuss how outsourcing your tax preparation can help streamline this process for your business.
What Is the Fundamentals of U.S. Sales Tax?
Before we begin the checklist, we need to know a few basic things about sales taxes in the United States.
- Specific laws of the state: It is up to a state to decide what its specific sales tax rates and procedures will be. Due to this, as there is no such thing as a federal sales tax, businesses shall function based on the policies of the state.
- Nexus: It means a firm's nexus or presence/activity in the state that makes it collect sales tax. Nexus created in a state is by having an office, warehouse, or employees.
- Sales Tax Collection: If a business has a nexus in any state, the business is responsible for the tax collected on taxable sales.
- Reporting and Filing: Most states require a business to file a report on the collection of sales taxes, typically monthly or quarterly, and the actual amounts paid.
How Do Businesses Maintain US Sales Tax Compliance?
It is important to pay attention to an all-inclusive checklist in maintaining US sales tax compliance. These steps are as follows:
Determine Nexus Status in Each State
- Know your nexus. It is where you will start counting your sales tax.
- Re-evaluate business activities that may create nexus, such as opening up new offices or hiring more employees in different states
- Outsource preparation of tax returns to get nexus status correctly across states
Register for Sales Tax Permits
- Before collecting the sales tax, you will need to apply for a sales tax permit from each state in which your business has a nexus
- If you fail to register, there are penalties and fines. The rules vary in every state so take care to keep up with the requirement
Determine Taxable Items and Services
- Not all of what you sell shall be taxed in every state. Ensure that what you sell falls into taxable or not taxable.
- You can then outsource the preparation of the tax while still classifying what is taxable and what is not to ensure compliance
- Some states tax digital goods and services, while others do not
Collect the Right Sales Tax Rates
- Sales taxes vary by state and some counties even charge different rates in different cities or counties. Always use the correct rate.
- Refresh your sales tax rates because they may change without warning and at any time.
- An outsourced service for tax preparation will update your system automatically, relative to the right rates
Clear Sales Records
- Maintain clear and detailed records of your sales transactions which includes a sales tax collected.
- Good record-keeping is the basis for an accurate and timely report and in case of an audit
- Consider outsourcing tax preparation to get records organized and controlled for you
File Sales Tax Returns on Time
- Missing any deadline to file may incur interest charges and other penalties, as well as possible audits.
- The state regulations might require that state sales tax returns be filed either monthly, quarterly, or annually.
- Outsource preparation of taxes with third-party service providers and repute remittances on due dates.
Payment of Collections of Sales Tax to the State
- Pay collections of sales tax on time to the applicable state agency.
- Make reconciliations of the tax collected with what is reported to be consistent
- Through tax preparation, outsourcing can avoid cost-incorrect remittances.
What are the Common Challenges in Sales Tax Compliance?
Sales tax compliance presents numerous challenges which could cause trouble in the normal functioning of your business. Some of the common ones are as follows:
- Tax laws keep on changing: Sales tax rules change because it would add up with the growth of e-commerce. The states update tax policies quite often.
- Multiple jurisdictions: Larger businesses have to manage various tax regulations in each jurisdiction since they operate across several states.
- Complexity of Digital Goods: Normally Digital goods and services are surrounded by ambiguous tax laws that can get confusing. An outsourced tax preparation service can help you to clear through such complexities.
- Audits: Since you are an e-commerce business, it is not something unusual to face a sales tax audit. Perfect reporting and time to submit avoid several problems.
Why Outsource Tax Preparation Services?
Most businesses benefit from outsourcing their sales tax work. Now, let us find out how outsourcing tax preparation services will help organize your business.
- Professional Expertise: The rules relating to taxes keep on changing, and the outsourced service providers keep themselves updated on the latest available rules.
- Accuracy: As professionals will be dealing with your sales tax compliance, the chances of committing mistakes decrease.
- Save cost: The company will save money by not engaging its tax specialists in-house.
- Save time: The management can be in a position to focus on other sides of the business due to the free time produced after hiring a professional to handle your tax filings.
- Heavens: Outsourcing such compliance issues with experts allows one to reduce his risky compliance and the possible penalties.
Benefits of Tax Preparation Outsourcing: Outsourcing tax preparation offers various benefits to firms that wish to make the business leaner. Some of the major advantages include:
Accuracy and Compliance: All related matters concerning compliance can be taken care of by the experts, so your business would never be out of line with prevailing laws.
Cost Efficiency: Outsourcing will keep you from hiring and training tax professionals in-house.
Risk Reduction
- Preparing taxes is a time-consuming process and sales tax audits can be stressful.
- Chances of audit reduced: Proper filing reduces the chances of an audit when outsourced.
Core Operation: Tax filing is not the core competency of your employees. Let the outsiders handle that, and let your team move ahead.
Sophisticated Tools: Companies you hire will have utilized leading tax filing software which ensures that the whole process will even be more streamlined and efficient.
Conclusion
It is not necessary to have headaches remaining compliant with U.S. sales taxes. While the business is outsourcing its tax preparation, it could come out ahead of its compliance requirements and avoid penalties by going through the checklist steps given therein. Outsourced tax preparation for U.S. businesses serves as a way of alleviating stress about being compliant with taxes and remaining cost-effective in terms of accuracy and peace of mind.
Seamless Sales Tax Compliance Want that? Well, through tax preparation outsourcing and end-to-end compliance management, Fino Partners is here to help you get back to the business of growing your business and we'll handle the rest!
