This article was written for the Atlanta Business Chronicle Leadership Trust. To see the original post, click here

In a little more than three years since the Supreme Court’s Wayfair decision, multi-state sales tax has gone from a simple obligation for some companies that were based solely in one state to a nightmare of complying with 50 different states’ sales tax rules.

business-people-group-assembling-jigsaw-puzzle-P36PRZW-1

The key trend driving that complexity is that almost all states and scores of smaller jurisdictions require that out-of-state businesses calculate, collect and remit sales tax for an expanding variety of goods and services, which comes as e-commerce continues its upward trajectory.

Non-compliance or errors in sales tax compliance can result in stiff penalties. Compliance is not something you should leave to chance, but it’s time-consuming and requires regular upkeep. An important first step in understanding how to piece together your sales tax compliance process is to assess your current situation.

Your sales tax obligation begins with nexus, or your connection to a taxing state or jurisdiction. Once you’ve determined where you have nexus and understand the taxability of your products and/or services, it’s time to ensure you are set up to collect, file and remit correctly.

Register in appropriate states and jurisdictions

You need to register with a jurisdiction before you begin collecting and remitting their sales tax, and methods to do this vary greatly from state to state. In some states, for instance, a Secretary of State registration may be required before registering with the state’s department of revenue/taxation.

In general, begin by gathering important information as your Employer’s Identification Number (EIN) and contact information for the principals of your business, including their Social Security numbers. Some states will also ask for copies of driver’s licenses.

You may also have to register in local jurisdictions. Some states — notably Alabama, Colorado, Louisiana, Alaska, among others — empower municipalities and other jurisdictions to levy sales taxes. In some states with local jurisdictions, you can register with just one form. Also with some states, you must specify the tax you’re registering for (e.g., sales tax or use tax).

Learn your filing schedule

Jurisdictions can have a dizzying number of deadlines to file sales tax returns. Due dates often include the 7th, 10th, 15th, 20th, 30th and the last day of the month. Returns are typically due monthly, quarterly or annually. Some states have more unusual frequencies, including semi-annual and bi-monthly. Depending on the tax jurisdiction and the amount of tax reported, you may have to file no more than once a year — or you may have to start filing the minute you register. Other factors affecting due dates can include holidays, state furlough days and weekends.

A state may also require that you file on one date and pay on another, or that you remit shortly after collecting the tax. Some jurisdictions also take prepayments, which are often for larger amounts and on a different filing schedule. In some states, you also don’t even have to owe tax to incur a filing requirement.

By maintaining an accurate tax calendar, you can tell where you’re registered for sales tax purposes, the filing frequency of each return, the due date, login credentials, methods of filing (e-file or paper, see below) and any other information specific to the jurisdictions where you have nexus. 

Software can manage some of this, but filing frequencies can change fast and often with little warning. Updates are vital. Third parties such as software companies can also present challenges. For example, if you fail to tell your software company that your filing frequency has changed and they file returns late, the liability falls on you, not on them.

Accurately file your returns

Your compliance process should include the ability to prepare and file both online and paper returns. Though almost every state will require an online filing with an electronic payment, local jurisdictions often require paper returns with a check. In the case of the latter, you have to determine if you can have checks or payments authorized timely in your company.

Managing notices

Jurisdictions send a lot of notices. Every notice represents the information you need to remain in compliance and something that requires diligent monitoring and timely attention and response. Ignoring a notice completely could put you and your company at risk. You could be opening the door to additional penalties.

Some notices may be strictly informational but still critical, such as a notice of changing filing frequencies or sales tax rates. It might be a simple question about your last filed return or payment. It could also be a deficiency notice that requires an issue to be responded to or even resolved, typically in a tight time frame of days. 

Follow instructions or recommendations on the notice and make appropriate changes to your system to maintain sales tax compliance. If a third party handles your sales tax obligations and is not already monitoring your notices for you, be sure to let them know about this and all other notices.

Notices may arrive in the mail, show up in your email inbox or simply be posted to your account on the tax jurisdiction’s website. You must know where to look and be sure you have someone designated to read and respond as needed. Keep all notices in order and safely stored in either physical or electronic format.

Final thoughts

Sales tax compliance is a specialized practice that’s not getting easier, but like many complicated processes in business, it’s manageable if you understand the process and can break it into smaller steps. An important piece to managing this process is to ensure you have someone experienced enough to manage the process and keep up with all the changes happening in sales tax. Many businesses find it helpful to outsource this function to a CPA or services firm to not have an additional burden and risk fall to their own financial teams.

Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2006 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.