Sales and use taxes can be some of the most complicated tax obligations many companies face.
To correctly collect and remit the tax in each reporting period, companies must apply detailed transaction-by-transaction analysis. The complexity of this approach, coupled with the ever-changing sales and use tax environment, can make it challenging for even the most sophisticated companies to stay fully compliant.
That said, it’s important to get this process right the first time—incorrect reporting can expose companies to hefty penalties and administrative burdens.
Below, gain insight into the three most critical sales tax compliance challenges many companies face as well as key steps to plan for them with confidence:
Sales and use tax compliance refers to correctly reporting transactions and paying taxes to each state or local jurisdiction as required. Jurisdictions can include cities, counties, districts, and parishes. To stay compliant, your company must:
This process can be complex; there are currently more than 9,000 state and local tax jurisdictions. On top of that, your company must keep track of developing nexus laws and requirements. This can lead to resource constraints and increased compliance risk.
There are a few common risks your company should be aware of before starting its reporting process:
The biggest risk is under- or over-collecting sales and use tax without having a complete understanding of your nexus footprint and the applicability of tax to your revenue streams.
Most returns are due on the 20th of the month. However, filing deadlines can occur on a quarterly, annual, or semiannual basis depending on your company’s liability amounts and the state or local jurisdiction’s requirements.