Take the guesswork out of tax compliance by doing your homework. These tips will get you started

By Rory Rawlings

“I’m not in the business of researching tax laws. I’m in the business of selling cyber security and software. So for me, and for ESET, it was worth getting that automated and finding the people who are experts in that field.”

—Mary Lou Carver, Accounting Manager, ESET North America and NetSuite user

Debates over online sales tax and related statutory rules and rate changes have vaulted sales and use tax compliance to the top of every savvy businessperson’s 2013 action list. Understanding how to implement safeguards and systems, monitoring widely varying statutory rules, and finding efficient ways to collect and remit the right sales and use tax to the right jurisdiction at the right time, can flummox even the most compliance-minded businessperson.

The following five sales tax compliance tips identify steps your business can take to help address 2013’s particular challenges. Developed by Avalara sales tax experts, these are a starting point, rather than an exhaustive strategy, for addressing sales and use tax compliance in 2013.

Tip #1 – Determine tax liability by analyzing changes to nexus rules
While most businesses have some concept of nexus—the connection between a business and a taxing jurisdiction requiring sales tax collection and remittance—many are unaware of dramatic changes to nexus laws happening now. There are numerous developments on the federal level, but this tip focuses on state-level changes that are currently underway. These rule changes significantly impact out-of-state remote sellers (such as online retailers), but all businesses should watch nexus laws closely.

To do:

1. Review where you currently have nexus and identify applicable rule changes;
2. Make sure your business is registered in states where it’s required;
3. Determine whether your business might have unknowingly created nexus in a jurisdiction. For example, using traveling sales people who physically enter a state to conduct business, utilizing contract labor, owning or leasing real or personal property in a state, participating in trade shows, or other nexus-creating activities;
4. Avoid practices that put you at risk for audit such as having out-of-date rates and rules, failing to recognize new rules that create remote seller nexus, or using error-prone manual processes to manage unwieldy sales and use tax laws and rates;
5. Watch the Avalara Nexus 101 Webinar.

Sample of states enacting related rule changes in 2012 and 2013:
Arizona, California, Florida, Massachusetts, Michigan, New Jersey, Pennsylvania

Read more about it:
Pennsylvania reminds ecommerce businesses to register

Arizonans to pay sales tax to Amazon in February 2013

Tip #2 – Stop ignoring consumer use tax
Use tax is defined as a tax on the use of tangible personal property (TPP) not otherwise subject to sales tax. Generally speaking, purchasers owe use tax on taxable items purchased on which they paid no sales tax or less tax than the applicable sales tax rate. Unlike sales tax, the remittance responsibility lies with the buyer (and that can be a business or an individual). In some cases, the purchaser would be a business, such as a manufacturer or a distributer, buying goods outside the state or online to use or consume as TPP. Use tax must also be paid when a business withdraws goods from inventory for its own use if sales tax was not paid on those items at the time of purchase. It is the responsibility of a business to self-assess when, and if, use tax is accrued and to pay the state and/ or local tax authority on a tax return.

To do:

1. Develop a written use tax policy;
2. Avoid practices that might increase your risk of audit. For example, failing to accrue consumer use tax, or using inventory purchased for resale for your company’s own use without remitting sales tax to a vendor or use tax to the state.

States enacting related rule changes in 2012 and 2013:
California, Colorado, Florida, Iowa, Maine, New York, Ohio, Texas, Vermont, Virginia, Wyoming

Read more about it:
Iowa, use tax, and streamlined sales tax

California use tax

Tip #3 – Understand changing exemption certificate rules
Tracking and filing exemption certificates, the bugaboo of many a well-intentioned business owner, has just gotten more complicated. In 2013, several governors have already proposed plans that would change what their states exempt from sales tax.

To do:

1. Create an audit trail for certificates;
2. Be sure to update product and service exemption rules for each jurisdiction in which you do business;
3. Be able to quickly generate an exemption certificate summary report;
4. Avoid the following exemption certificate-related practices that might increase your risk of an audit: inability to quickly generate a summary report; inaccurate, incomplete, and missing certificates; expired certificates.

Sample of states enacting related rule changes in 2012 and 2013:
California, Colorado, Louisiana, Maine, Minnesota

Read more about it:
Minnesota tax court: out of state purchases subject to use tax

Colorado FYIs and sales tax-exempt transactions

Tip #4 – Know when, where, and how to remit sales and use tax returns
Even companies that work hard to accurately track and update changes in sales and use tax rules, boundaries, and rate changes often fail to remit their liability correctly. Knowing which form to use, where to file, and what to include in your returns can be an onerous task.

To do:

1. Review whether your filing schedule has changed, keeping in mind the schedule generally relates to your business revenues;
2. Find out whether the states where you have to remit sales tax have implemented new e-filing laws;
3. Avoid the following filing errors that might increase your risk of an audit: failure to prepay where required, late payment, or payment to incorrect jurisdictions.

Sample of states enacting related rule changes in 2012 and 2013:
Colorado, Florida, Indiana, Maine, Maryland, New York, Virginia, Washington

Read more about it:
Maryland issues new sales tax return form

New York Online Sales Tax System

Tip #5 – Get help
Companies trying to accurately collect, file, and report sales and use taxes face an uphill battle in 2013. Some additional resources will help:

1. Sales tax holidays
2. Avalara Nexus 101 Webinar
3. Table of Department of Revenue websites
4. Get more sales tax compliance tips
5. Determine whether your company needs a Voluntary Disclosure Agreement

Or follow the example of thousands of other businesses and utilize the expertise and affordable solutions Avalara provides.

About Author

Rory Rawlings is cofounder and Chief Tax Automation Officer at Avalara, where he leads development efforts around accuracy, reliability, and efficiency of the company’s robust web-enabled sales tax compliance solution. Contact Avalara

The statements and opinions herein are those of Avalara and not of NetSuite. NetSuite has not verified any statements or claims herein and assumes no responsibility for such statements or claims.