If you have any experience working with sales tax, you’re aware that trying to manage the entire process can get complicated fast.
Sales tax is a team sport – you can’t do it on your own. But with some expert guidance, you can get a much better handle on the “big picture” when it comes to the sales tax administration. And, as with many things in the accounting, tax or financial arena, one of the first steps in administering sales tax correctly is gathering the right data.
We have identified 5 key categories of data you’ll need to successfully manage the sales tax administration process. Within each of these categories are crucial pieces of information that you may not be aware of – information that you need to gather to ensure that you are correctly managing the entire spectrum of sales and use tax administrative responsibilities.
In the world of sales tax, nexus is one of the first and most important concepts you need to understand. In short, nexus is what determines in which jurisdictions (states, cities, etc.) you are required to collect and remit sales tax.
But in order to determine where you have nexus, you need to gather some information. And with different types of nexus legislation being passed regularly by the states, the types and amount of information you need to be gathering can grow substantially more burdensome.
Once you have the answers to these and other questions related to where you have activities, then you can determine where you have nexus. Here are a few (but not all) of the questions you’ll need to ask yourself to determine your nexus exposure:
These last 2 questions are particularly noteworthy at the moment.
The U.S. Supreme Court recently issued a decision in the landmark case South Dakota v. Wayfair. The Court’s decision struck down the physical presence requirement that was the previous standard bearer for determining whether a seller has nexus in a state. But it hasn’t eliminated the need to determine if you have physical presence in a state. That will still create nexus – regardless of your sales into the state.
In the wake of the Court’s decision, states across the country are busy enacting “economic nexus” requirements for out-of-state sellers, which includes online sellers. A common threshold for determining whether a seller has created economic nexus is $100,000 in sales or 200 separate sales transactions in a state. If you make sales into other states, it is likely that you need to be gathering this information to determine if you have created nexus. Meaning, don’t wait until for the state to come to you until you figure it out!
If you’ve established nexus for sales tax purposes, you’re next step is to register to collect and remit sales tax in that jurisdiction. Before you get started on the registration application however, you’ll need to gather some information. Here are some of the items you’ll need to take into consideration when registering in a state:
The information you submit on a sales tax registration can have far-reaching implications for your administration and compliance, so you’ll want to pay special attention to the questions that are asked and gather the correct information as needed.
Next, you’ll need to determine the taxability of the product or service that you’re selling. There are many questions and factors that go into correctly determining the taxability, but here are a few of the most important questions you should be gathering information on:
Gathering the information to answer the above questions is one of the most critical steps in sales tax administration and compliance. You’ll need to correctly determine the taxability of your sales to ensure you are charging (or not charging) sales tax correctly on each and every sale. Making mistakes when gathering this information can lead to big problems down the line, come audit time.
Once you’re registered to collect and remit sales tax in a jurisdiction, it is vital that you stay sales tax compliant. A major part of ongoing sales tax compliance is correctly putting your tax returns together. In order to do this, you’ll need to gather the right information. A few of the key pieces you’ll need for sales tax compliance and return filing are:
As part of your duties in the tax department, it is very likely that you need to submit reports to management. There are some items you’ll want to monitor that will be of interest to management. Here are some of those items:
Gathering the right information is just one key piece of the puzzle when it comes to sales tax administration and compliance. Staying on top of sales tax administration can be overwhelming, and some expert advice can go a long way in getting a grip on your responsibilities. See below for additional resources to help you with sales tax administration.