Make Sales Tax Less Risky with Avalara
Posted by Donna Krizik on November 19, 2013
How Much Sales Tax Risk Do You Carry?
Sales tax. It is one of those tasks that can drive your accounting team crazy. But it is a necessary evil. Undoubtedly you have developed a process that works, but do you know how that process will hold up during an audit? This is not an area where you want to make mistakes – they can be costly. The average sales tax audit penalty is $34,000.
States are short on revenue and looking at uncollected sales tax to help stay in the black, meaning that sales tax practices are increasingly under scrutiny. Now is a great time to examine your sales tax process and determine how risky your current process is. Some things to consider:
1. Are you managing sales tax manually? Perhaps you look up sales tax rates by ZIP code or download rate tables. ZIP codes were created for the postal service and do not always line up with tax jurisdictions. Relying on ZIP codes to determine tax rates can translate to over or undercharging your clients.
2. Do you know that the taxability of your products can 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.
3. Do you fully understand the rules on tax nexus? A lot of people get this one wrong, and think of sales and use tax obligations in terms of where their business is located, instead of where they do business. The activities you engage in within those states can mean a big difference. 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.
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 first taking time to examine your sales tax procedures and develop a consistent, defined process.
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 Acumatica, along with most e-Commerce shopping carts and POS systems to help you achieve compliance and accuracy.
Interested in learning more? Attend a free webinar that goes through some of the tips, tricks and pitfalls, and get our free Definitive Guide to Sales and Use Tax for a detailed primer on sales and use tax. Register Today!