When your business begins selling over the internet, you’ve likely multiplied your revenue potential. Congratulations! What you may not realize is that you’ve also likely established nexus in many additional tax jurisdictions, which means that you’ll need to collect and remit sales and use tax in those taxing jurisdictions as well.
The type of business activity that creates nexus is different for each state or jurisdiction. Through the passing of “Amazon Laws” (named after the online retail giant), several states now require that out-of-state retailers collect and remit sales taxes on many types of online transactions. Some of these states include Washington, California, Colorado, South Dakota, New York, Connecticut, Tennessee, Ohio and Alabama — and other states are following suit.
Not properly calculating sales tax can be costly for a business. Fees alone can add up to 1-2 percent of a business’ total revenue – on top of back taxes, interest and the cost of defending the audit. Additionally, non-compliance can damage a business’ reputation with customers, partners and vendors.
In order to understand how your expanded online presence affects your sales and use tax obligations, follow these steps:
Assess. If you don’t have an in-house tax team with expertise in this area, consult with sales and use tax experts to help you make determinations as to where you have nexus, the categories of goods/services that you offer and how to improve your process for properly determining, collecting and remitting sales taxes.
Use Automated Tax Calculation Tools. Whether you need to outsource some of your sales and use tax compliance or have a tax team to handle it in-house, you’ll want to use industry-trusted sales and use tax software to make the right sales and tax determination at the point of sale. With more than 10,000 taxing jurisdictions that often change regulations, up-to-date software is a necessity in today’s complicated sales and use tax world. How often do regulations change? We tracked more than 8,000 changes to sales and use tax regulations across the 10,000 U.S. taxing jurisdictions in 2015 alone. Even an in-house tax team will need to rely on a software solution that will properly and seamlessly calculate, track and verify your transactions, so that you and your tax team can focus on strategy and growth.
Choose a Trusted Source. Sales and use tax is complicated. The wrong software will result in inaccurate, incomplete or misapplied taxes – it will hurt your business. Look at the features, reputation and reliability of the software solution instead of choosing based on price.
Consider Using Industry-Specific Solutions. Being able to rely on industry-specific content and software that is geared toward your industry is advantageous for many industries, and it’s vital for telecom and retail that have numerous additional complexities. A software vendor like Wolters Kluwer with deep expertise will be able to help your business navigate the complicated waters.
Get more information about sales and use tax in our free white paper: Finding the Hidden Traps in Your Sales Tax Process.