How Much Sales Tax Risk Do You Carry?

Sales tax. It is one of those tasks that can drive your accounting department or bookkeeper crazy. It is also one of those unavoidable statutory requirements. Undoubtedly you have developed a process that works, but do you know how that process will hold up in an audit? Most companies cannot afford to screw up sales tax. The average audit penalty of $34,000 means the consequences of making mistakes are dire.

In a time where states are short on revenue and looking at uncollected sales tax to help make up that gap, sales tax practices are increasingly under the microscope. Now is as good a time as any to examine your sales tax process and determine just how much risk you carry. Here are a few things to consider:

Are you manually managing sales tax in Microsoft Dynamics or Intacct?

Perhaps you look up sales tax rates by ZIP code or download rate tables to implement into your ERP. This can be time consuming and error prone. ZIP codes were created for the postal service and do not always line up with taxing jurisdictions. Relying on ZIP codes to determine tax rates can mean over or undercharging your clients.

Does the taxability of your products vary by jurisdiction?

Products that are taxable in one state may not be in another. For example, some Indiana localities have adopted a local food and beverage tax when a food or beverage is sold, served or prepared for consumption. In neighboring Ohio, most food items are non-taxable unless they are consumed on the premises where they are purchased.

Are you doing business in multiple states?

Instead of thinking of sales and use tax obligations in terms of where your business is located, think about where you do business and the activities you engage in within those states. Why? Rules vary from state to state when it comes to what creates sales tax nexus. For example, certain trade show activities can trigger sales tax liability in Illinois, Texas, Nevada, Florida and California.

Reduce your risk:

Sales tax can be tricky, especially when manually keeping up with rate, rule and boundary changes in multiple jurisdictions. Reduce your risk of a negative audit by taking time to examine your sales tax process and develop a consistent, defined work flow. Then, look for ways to increase sales tax calculation accuracy. Automating the sales tax calculation and decision process can save time, money and effort. Avalara sales tax automation solutions integrate with Microsoft Dynamics and Intacct, along with most e-Commerce shopping carts and POS systems to help you achieve compliance and accuracy for all your transactional tax needs.

For more information on how to reduce your risk, join us for an upcoming webinar:

The Hidden Dangers in Your Rate Tables
1PM ET, Wednesday, April 23, 2014
Register Here