Do you have nightmares at night about collecting and paying sales tax in your business? Sales tax has become a growing concern of many states, with most agencies tightening procedures to ensure they collect money rightfully owed to them.
Understanding where other businesses went wrong can help you stay in compliance with state agencies and allow you to get a good night’s rest. Here are five horror stories to be aware of.
#1: Neglecting Marketplace Facilitator Laws
To make matters even more confusing, you aren’t required to collect sales tax on every platform. Some platforms, like eBay, Etsy, and Amazon fall under marketplace facilitator laws. This means that they assess and remit sales tax on your behalf.
Now, here’s the scary part. If you believe the platform you are on is a marketplace facilitator, when they actually aren’t, you could face back taxes with stiff penalties.
This is why it’s always important to double-check if the platform is a marketplace facilitator and that they are properly remitting sales tax to each state on your behalf.
#2: Calculating Sales Tax by Hand
The days of manually calculating sales tax are long gone. It’s scary if you are still calculating sales tax by hand. Manual computations open the door to errors, mistakes, and missed deadlines.
Imagine what happens if you transpose a 1 and a 9 in $19,000. This can result in a higher sales tax liability if the mistake isn’t caught.
In addition, it’s not uncommon for ecommerce sellers to be required to remit sales tax in dozens of states. Calculating sales tax by hand creates a tedious and inefficient process.
Using a sales tax calculation tool that utilizes automation allows operations to run efficiently and eliminates the risks associated with manual calculations.
#3: Collecting Sales Tax Without Registering in the State
If you’re like most business owners, you set up your sales tax function when you started your company. However, you aren’t required to collect and pay sales tax to every state despite the Wayfair vs South Dakota case decision.
Now you’ve collected all this sales tax from customers, but realize that you don’t actually need to file a sales tax return in every state. This is truly a scary situation.
Businesses aren’t able to legally collect sales tax without the state’s authorization, which is granted through registration.
Your proactive approach actually led to more harm than good. Before you collect any sales tax, be sure you are required to file and submit a registration form.
If you mix up the steps, you will most likely be assessed fines and penalties from the state.
#4: Bypassing Other Tax Obligations from Sales Tax Registration
When you register for sales tax in certain states, you trigger other tax obligations. For example, when you register for sales tax in Texas, you are obligated to file a Texas franchise tax return each year.
If you miss filing other tax obligations, the state can put a lien on your assets and withhold your sales tax permit, leading to lost business and uncertainty surrounding future operations.
Ohio, Washington, and California all have other tax obligations when you register for sales tax.
When you are unsure what obligations arise from registering for sales tax, contact an expert that can walk you through the regulations.
#5: Forgetting to Double Check Sales Tax Software Calculations
Although sales tax software calculations can save you a significant amount of time, they can make mistakes. As a business owner, the burden falls on you to double check the sales tax software calculations to be sure you are remitting the proper amounts.
Furthermore, some sales tax software programs don’t calculate sales tax for every state. Many business owners see that the software is advertising sales tax calculations and remittances, but don’t read the fine print about excluded states.
Always pick a software that has the capabilities to process sales tax in every state and offers transparency into when nexus is triggered and which states you are required to file in.
Summary
Sales tax doesn’t have to keep you up at night. Understanding these five horrors that business owners face can help you avoid them and position your business for accuracy and compliance with each state agency.
For more information on the sales tax regulations that your business might be subject to, reach out to a team member at BUSINESS. We can set up a consultation to go over the specifics of your business, increasing compliance and decreasing your stress levels surrounding sales tax.
