what you need to know to keep your business …sales and use tax: what you need to know to keep your...

Sales and Use Tax:What You Need to Know to

Keep Your Business Compliant

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Brian MackinAvalara

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Sales and Use Tax:What You Need to Know to

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mail: P.O. Box 509 Eau Claire, WI 54702-0509 • telephone: 866-352-9539 • fax: 715-833-3953email: [email protected] • website: www.lorman.com • seminar id: 395774

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Sales and Use Tax:What You Need to Know to Keep Your Business Compliant

Prepared and Presented by:

Brian MackinAvalara

1

© Avalara

Sales Tax 101 For The Small Business Owner

Presented by Brian MackinSales Manager

Making sales tax less taxing

Sales and use tax compliance

52% of accounting professionals agree: completing a marathon would be easier to accomplish

than understanding sales tax compliance laws.

Source: Wakefield Research 2013

3


The state of our States

States are still recovering from the Great Recession

In 2013, 31 states projected budget deficits totaling $55 billion

NRF estimates $24 billion in sales taxes goes uncollected on the Internet

Therefore

As tax-collecting agents of the State(s), they are looking to your business to find more money

This increased focus creates compliance risk for you


When general sales tax and selective sales tax are combined, sales tax makes up 47% of total state revenue

Where do States turn for tax revenue?

Source: US Census Bureau, 2012 Census of Governments: Finance – Survey of State Government Tax Collections at www.census.gov/govs/statetax

Total State Government Tax Collections by Category

Other taxes 3.9%

Corporation net income taxes 5.3%

Total license taxes 6.8%

Total selective sales taxes 16.6%

General sales and gross receipts taxes 30.5%

Property taxes 1.6%

Individual income taxes 35.3%

4


States finding more sales tax revenueby broadening definitions of nexus

Remote sellers can no longer assume that Quill v. North Dakota means they don’t have to collect sales tax

Nexus-creating activities (examples): Independent agents

Remote sales force

Affiliate Nexus

Trade show participation

“Amazon Laws” Cyber Monday, 2013: SCOTUS leaves NY click-through affiliate law in place

11 States have already passed Amazon Laws


States finding more sales tax revenueby hiring auditors

California announces hiring 100 auditors over the next three years

Idaho hires 48 auditors that stay on as full time staff

5


States finding more sales tax revenueby passing new legislation


States rally together in effort to pass federal legislation targeting remote sellers

MFA 2013 Passes Senate 69 to 27

Congress to reopen discussion in first half of 2014

6


Nexus – where do I need to collect & remit sales tax?

Exemption Certificate Management

Product & Service Taxability

Rate Assignment

Sales Tax Returns

Reporting & Audit Defense

The Challenges of Sales Tax Compliance


Quill vs. North Dakota (1992) – U.S. Supreme Court

The Commerce Clause vs. Due Process

“Substantial” Physical Presence

Office or Warehouse

Employees

Contract Sales Force or Installers

Regular Visits

The Future?

Economic Nexus and the Marketplace Fairness Act

Technology is easing the burden making the Commerce Clause argument less compelling…

Nexus… Where to collect and remit?

7


Do you have traveling sales people in the state?

Do you utilize contract labor in the state?

Do you have company representatives in the state?

Do you own or lease any real or personal property in the state?

Do you promote your products or services in the state?

Do you participate in trade shows or exhibits in the state?

(And every year this list continues to grow)

Have you created nexus in the last year?


Nexus-creating activities: a growing list

Multi-state locations

Maintenance/service/repairs

Own/lease real property

Hosted DataCenters

Field sales/service staff

Charge Licenses/royalty/fees

Direct and/or online sales

Maintains inventory

Affiliates

Tradeshows

Commissions to resellers (1099s)

Investors/board members

Marketing/Web advertising

Drop shipments

8



• 150+ million mailing addresses

• 11,000+ jurisdictional rules

• 35,000+ sales / use / rental tax rates

• ~ 30 M product / service exemptions

• 750,000+ buyer / seller exemptions

9


Product and service taxability

What is taxable in one state, may be exempt in another

Check with each jurisdiction for unique product taxability laws

Product taxability laws are not consistent

Similar products might be taxed differently

Different industries have varying taxability rules

TaxableNon-taxable


Understanding product & service taxability exceptions Rules and rates vary between states

The following industries have varying taxability rules: Software / hardware

Digital goods

Services

Medical device / equipment

Food / beverage

Clothing / apparel

School-related products

Dietary supplements

And many other industries / products

10


Identifying and managing exemptions

Three primary exemptions: Product-based (generally does not require exemption

certificate)

Entity-based (requires exemption certificate) – deduction specifically related to the exempt status of the purchaser.

Use-based (requires exemption certificate) – exemptions covering products and services which are used for a particular purpose:


In July 2013, Wakefield Research conducted a survey among 400 accounting professionals using an email invitation and an online survey. . These accounting professionals were at companies with $1 million or more in total revenue.

1 in 4 Companies Don’t Track Their Exemption Certificates

24% have no system for tracking exemption certificates.

76% have a system for tracking exemption certificates.

1 in 4 Companies Don’t Track Their Exemption Certificates1 in 4 Companies Don’t Track Their Exemption Certificates

11


Make sure you know the sales tax return deadlinesFiling Frequencies can change

Check with each jurisdiction for filing requirements

Jurisdictions typically send out notices in advance of a filing change

Even if you don’t receive a notice, you are still expect to meet the new filing deadlines

Remitting sales tax the right way


Remitting sales tax the right way

Find out whether the jurisdictions require pre-payments

Adjust your calendar accordingly (filing frequency requirements vary)

Pre-payments can have different filing schedules than regular returns

12


Avoid these common mistakes

Failing to file a return

Failing to report sales

Taking excessive credits or exclusions on a return

Filing returns with errors

Return information that doesn’t match other records

Mistakes found in previous audit

Previous finding of exemption certificate misuse

Not reporting use tax


- Sales Tax Returns

Sales Tax Returns

13


Reduce audit risk

Keep your sales tax collection records in perfect order

Clear and complete

Easily accessible

Show details of each transaction


How to reduce audit risk

Do a nexus study

Stay up-to-date with rate, rule, and boundary changes

Report consumers’ use tax

Be compliant from day one, especially new businesses

Automate with technology

An understanding of your filing requirements

Calculations that are rooftop accurate

Product taxability coverage

Detailed sales records

A process for managing exemption certificates

You should: Make sure you have:

14


Streamlined Sales Tax states: 24 and growing


Manual sales tax management is time-consuming, risk prone, and expensive

Source: Wakefield Research, July 2013

Average total cost for businesses to manage a sales tax audit

Average time spent filing sales tax returns and remitting payment

11 hours per week

Percentage of businesses that believe a sales tax auditor would find a mistake

15


Sales tax end-to-end compliance


How AvaTax WorksA Tax Engine in the Cloud

AvaTax does not support cash basis accounting - must be accrual

TransactionalData

Returns & Remittance

Rates &Rules

Connector

16


Making sales tax less taxing 30

Brian Mackin

Direct Line: (206) [email protected]

Questions:

17

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