If your company is responsible for sales tax in various states, you’re responsible for filing and remitting these funds every year. Managing this aspect of tax compliance can require many company resources, especially if you’re not familiar with every state’s laws. With sales tax management services from Compass East, you can remain compliant while focusing on larger company projects.
The Challenges of Sales Tax Compliance
If your company has to manage sales tax compliance state by state, you encounter a range of challenges. With every state having different tax laws and reporting requirements, you need strong organizational skills and attention to detail to remain compliant. Sales tax challenges include:
- Location: Typically, businesses will rely on zip codes to determine sales tax requirements. However, taxing districts and municipalities don’t always align with zip codes when it comes to creating tax laws. While using zip codes may seem like the easiest method, it’s not the most accurate one, and it can lead to errors.
- Origin sourcing: Most states apply sales tax based on the location a product is shipped to, but there are exceptions. Some states use origin sourcing as their approach to sales tax. This type applies tax to the vendor’s location rather than the destination. It’s essential to know which states use the origin sourcing law and apply it to relevant reporting practices.
- Product requirements: Sales tax requirements will change depending on the product being sold. For example, food is almost always exempt from sales tax, unless it’s prepared. What defines a prepared food will vary by state, and rules will also change when a person buys a prepared food with a non-prepared food. If you’re not aware of the intricacies of these requirements, you may not charge the correct tax rates.
- Additional taxes: Certain industries or products in states include other taxes on top of the standard sales tax rate. Fuel like gasoline or diesel often comes with an excise tax, and rental cars come with an additional tax as well. It’s also common for states to add taxes to alcohol and tobacco.
- Exemptions: Tax exemptions are often forgotten in sales tax reporting. For example, the reseller exemption requires resellers to charge sales tax on the product’s original price rather than the current price. There are also tax exemptions related to selling materials that will go toward manufacturing an end product.
- Tax holidays: States may introduce tax holidays to incentivize buyers to purchase specific products. These products include items like school supplies at the end of the summer or disaster preparedness supplies for hurricane season. Take note of these holidays to know when to omit sales tax.
- Reporting: Once you account for varying sales tax rates, sourcing, product requirements, exemptions and holidays, you need to file these taxes with relevant state authorities and remit payment. This process involves varying document requirements and deadlines in each state.
With the many challenges associated with sales tax compliance, it is essential to use all available resources for your tax practices and reporting. When you want to manage sales tax compliance, turn to Compass East.
Our Sales Tax Management Services
Our sales tax management solutions can operate on an ongoing basis to support your company throughout the year. We start the process by establishing our third-party systems and sales tax tools to determine the appropriate tax rates in every state and jurisdiction. With the many tax exceptions and changes by state and taxing district, this step is critical to your company’s accuracy everywhere it operates.
When we’ve established a structure that is accurate and efficient, we continue to monitor your sales tax rates and account for them with the appropriate documentation. As a part of our sales tax compliance solution, we will file and remit sales tax to governing bodies according to relevant deadlines and reporting policies. Our team handles this process monthly, quarterly or annually, depending on local requirements.
As part of this scalable service, we also consult with third-party tax advisors as your company grows. We confirm nexus rules and regulations when establishing new revenue line items and states to ensure we’re using compliant practices.
The Benefits of Sales Tax Compliance Outsourcing
Managing sales tax requirements represents an ongoing need, so outsourcing these processes can offer several advantages for your company. When you outsource sales tax compliance services, you can:
- Improve accuracy: With our sales tax management, we track your taxation in every state down to single figures. We have the ability to dedicate our time to accuracy, so you won’t have to question whether documentation is correct or reporting is compliant. Enhanced organization and accuracy also mean we can achieve the reporting process more efficiently.
- Minimize audit risk: When you file taxes late or incorrectly, states will flag this behavior and audit your company. Audits can put added stress on company operations, so reducing the risk is always a plus. On the off chance that you get audited with our management services, we’ll have an established paper trail for an auditor to follow with ease.
- Reduce costs: Finding ways to prepare for sales tax reporting can include hiring an in-house team or requiring current workers to shift their focus. If you’re working with tax novices, you’re more likely to make mistakes and encounter late filing fees or penalties. Our expertise helps you sidestep these expenses, so you can reduce the overall costs for sales tax management.
- Allocate resources elsewhere: When you outsource your sales tax management to us, you can keep your team focused on the big picture. While sales tax reporting is critical to compliance, giving all of your energy to it won’t drive growth like revenue-generating projects. We let you allocate your resources to company progress instead of tax maintenance.