Compliance isn’t for wimps. Just ask accountants and tax managers. After all, compliance isn’t just number crunching and spreadsheets. Following the sales tax rules of a jurisdiction involves far more than just finding the right tax rate. From product taxability to tax-exempt transactions to sales tax holidays compliance tasks can hamstring even the most efficient operations. Sales tax compliance includes many elements, but these tax tips for tax managers focus on those tasks associated with registration, collection, and reporting.
Tax Registration
Savvy tax managers know the first step in figuring out sales tax obligations begins with understanding where they do business and where they’re required to register, collect, and remit sales tax. These include the following recommended tasks:
- Identify where you are currently registered.
- Be sure tax collection is enabled in your tax calculation system (if automated within your ERP or other platform).
- Determine where your company has additional activities that may require further tax registration and reporting obligations.
- Monitor changes in market, products, or geography that trigger additional responsibilities.
Tax Collection
Obviously, the rubber meets the road at the point of collecting sales tax from a seller. And this is also where transactions and compliance can go wrong; very wrong. From unhappy customers with inaccurate pricing, to irritated auditors with a trail of erroneous charges, collecting the right amount of sales tax is crucial. Follow these basic recommendations to stay on track:
- Review your existing approaches to tax calculations and exemption methodologies.
- Identify how products and services are taxed – including the use of tax categories or tax vendor-provided system codes.
- Identify the process in which tax categories are assigned to specific billing codes or inventory/service line items (the ‘tax mapping’ process).
- Identifying how tax credits are used and incorporated into the tax reporting process.
- Understand how customer exemption and resale certificates are obtained from your customers, including the validation process of the certificates and relevant documents.
- Document the flow of tax charged from transaction to tax form.
Tax Reporting
When all is said and done, knowing where and how and when to report and remit sales tax to the correct jurisdiction is critical. What good are robust systems and accurate collections substantiated by well-documented processes, if the form is sent to the wrong place or late? Here are a few reporting recommendations:
- Document the current ‘tax calendar’ – the list of state and local taxing jurisdictions in which your company is registered, along with the key filing requirements (filing frequency, prepayment requirement, return type, etc.).
- Document how sales and use tax charged and reported is recorded in your financial reporting system(s), including GL accounting and distribution.
- Identify supplemental reporting requirements such as consumer’s use tax reporting – including the nature of the data sources used and the existence of processes to validate vendor-charged tax in the purchasing process.
Savvy tax managers know sales tax compliance is a difficult but worthy task. Get familiar with these Six Common Sales Tax Registration and Filing Errors and gain some best practice tips for overcoming them.
Learn more about Avalara from CAL Business Solutions.
Guest Post by Avalara for CAL Business Solutions, www.calszone.com
