Close

Tax News

Back to Article List

7 Common Sales Tax Errors and their Fixes

Share this article...
7 Common Sales Tax Errors and their Fixes

7 Common Sales Tax Errors and their Fixes

No one likes calculating, collecting, remitting, or filing taxes, nor do they enjoy tracking exemption certificates, sales tax holidays, or product taxability. It’s easy to be lured into a false sense of compliance when it comes to sales tax. This false sense of security may be leading some companies to a point of no return. The following seven common sales tax errors may each have potentially devastating consequences.

1. Error: Missing or invalid exemption and resale certificates.

Resale certificates are provided to suppliers to substantiate that the items purchased are intended for resale only and therefore are exempt from sales tax. These resale certificates enable your purchaser to make tax-free purchases that would normally be subject to sales tax. Unfortunately these certificates may have expired or may be invalid, potentially leaving the seller liable for uncollected sales tax. Developing an efficient and automated process to manage certificates is key for companies to remain sales tax compliant.

The Correction:

  • Conduct an investigation of a certificates authenticity when received.
  • Be able to quickly generate an exemption certificate summary report.
  • Create a tickler listing certificates expiration dates. 
  • Contact purchasers for renewed certificates BEFORE allowing purchases
  • Update product and service exemption rules in each jurisdiction in which you do business.

2. Error: Application of the wrong rates, rules, and boundaries.

  • Failure to track changes in rates, rules, and boundaries can lead to disaster. There are over 11,000 jurisdictions in the United States and countless changes to track each year. Finding accurate information on these changes is nearly impossible without a system.

The Correction:

  • Understand in what states your company has “Nexus”.  This may require legal guidance.
  • Register in all states where it’s required and get on their mailing list.
  • Use an automated solution such as Avalara AvaTax to track rate, rule and boundary changes.  This will help you save valuable resources and help avoid potential audit fines and penalties.

3. Error: Incomplete product and services taxability research.

Failing to correctly apply the right sales tax rates and rules to your product and service is a hazardous and potentially costly error. States change product and service taxability rules with great regularity, and the unfortunately the responsibility is on you to track these changes.

The Correction:

  • Review all updates to state and local product and services taxability matrices (generally available on state Department of Revenue sites) for all states in which you do business.
  • Subscribe to individual state “tax change notices” email lists.

4. Error: Neglect changing nexus laws.

Numerous states have passed laws requiring remote sellers to collect sales tax when a certain amount of referrals are from in-state affiliates.  While most business people have some concept of nexus, it is crucial to understand the connection between a business and a taxing jurisdiction requiring sales tax collection and remittance.  Your firm must stay on top of the many and dramatic changes to nexus laws happening constantly.

The Correction:

  • Review where you currently have nexus and identify applicable rule changes.
  • Make sure your business is registered in all states where it’s required.
  • Determine whether your business might have unknowingly created nexus by engaging contract labor, attending out of region trade shows or other nexus-creating activities.

5. Error: File the wrong forms and pay taxes late.

Not filing and/or remitting late or incorrect tax forms is a red flag to state auditors

The Correction:

  • Review whether your filing schedule has changed in applicable states.
  • Find out whether the states where you have to remit sales tax have implemented new e-filing or pre-payment requirements.

6. Error: Misunderstanding Consumer use tax.

Consumer use tax is one of the most common causes of miscalculated and unpaid tax is found in audits. Use tax is defined as a tax on the use of tangible personal property (TPP) not otherwise subject to sales tax. Generally speaking, use tax is owed when taxable items are purchased without sales tax or with less tax than the applicable sales tax rate.

The Correction:

  • Learn the difference between sales and use tax.
  • Develop a written use tax
  • Review all non-resale purchases and determine use tax applicability when appropriate.
  • Properly track and account for withdrawals from resale inventory.

7. Error: Passively accept negative audit findings.

Failure to challenge negative audit findings is a mistake. State sales tax audit are often incorrect or overstated.

The Correction:

  • Allow a professional tax resolution firm like ours to review the findings or errors.
  • File a timely appeal.

 

Hope this helps,

 

Stephan H. Brewer, CPA, CTRS, JSMc Tax

Certified Tax Resolution Specialist

Legacy Tax & Resolution Services, LLC

Phone: 480-907-6644

www.legacytaxresolutionservices.com

36 Tax Filing Mistakes and How To Avoid Them

Independent Foreclosure Review Payments- Taxable or Not?

PDF
Printable PDF

Have a Question About This Topic?

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the Terms of Use and Privacy Policy.

NEVER MISS A STORY.

Sign up for our newsletters and get our articles delivered right to your inbox.

 

Track Your Refund

 
Track Federal Refund Check Federal Amended Return Refund

Check your State Refund

Client Login

 

Refer a Friend

.