Answer These Four Sales Tax Collection and Filing Questions to Avoid Expensive Issues
Guest Blog by Jonathan Barsade
It’s a sign of success when a company starts to experience rapid growth. Expanding into new markets and adding to your customer base is exciting. But it’s important to make sure you stay focused on all aspects of the business, not just your growth trajectory: Don’t allow growth to distract you from the administrative aspects of running your business, including sales tax collection and filing.
Most business owners have the best intentions when it comes to collecting and filing sales taxes, but they may not fully understand how it works. To avoid liability for major penalties and interest payments, you have to make sure you know the answer to these four sales tax collection and filing questions:
1. When should I file? This is an important question because filing cycles can be different across multiple tax jurisdictions, and taxing authorities may set deadlines on different days of the month. When you expand into new markets, it’s critical to consult all relevant taxing authorities and make sure you know when to file in every jurisdiction to maintain compliance.
2. What do I have to file? Sales tax isn’t the only levy business owners may be required to collect. In some instances, companies must collect use taxes. Your obligations will depend on the requirements placed at the point of registration. By understanding what you’re required to file up front, you can avoid costly penalties and interest assessments later.
3. Where do I have to file? A pizzeria on Staten Island that crosses a bridge to deliver pies in New Jersey may create a “nexus” – a business presence in a tax jurisdiction other than the one they primarily operate in, meaning the business must file sales taxes in both states. It’s vital to understand where to file to ensure compliance with tax obligations.
4. How do I file correctly? Generally speaking, the onus is on the business owner to file correctly, and that includes the obligation to present all relevant documentation. For example, if a customer claims to be eligible for a charitable organization tax exemption, it’s a good idea to ask for a certificate so you can document eligibility if asked later by a tax agency.
Taxing authorities generally don’t give business owners a break for good intentions, so it’s critical to make sure you understand when, what, where and how to file in advance. Failure to know the answer to any one of these questions can result in the requirement to pay major back taxes and penalties.
Instead of going it alone in a complex tax environment, many companies rely on a partner to assist them with sales tax compliance. An automated solution that applies the latest rates and regulatory rules to accurately collect and file sales taxes across jurisdictions can allow company leaders to get back to what they do best — running the business.
But whether you choose to handle your sales tax obligations in-house or find a reliable automated platform, it’s important maintain focus on administrative functions, even when entering a period of rapid growth. Knowing the answer to these four questions is a great first step that will help you make sure you fully comply with your sales tax and use fee obligations as you grow your company.
Jonathan Barsade is CEO of Exactor