As a Sage 100 ERP consultant who help clients with ERP selection and implementation and ongoing supoprt, our team occasionally has clients who learn they are being audited for sales tax compliance. If your company has never been audited before, you are probably under the impression that you correctly recorded all sales and assigned rates and have always filed and remitted on time.
In this scenario, if you are like most businesses who must collect sales tax, you probably keep your exemption certificates in a filing cabinet in the back room and you manually update a spreadsheet with the rates, rules and boundary changes as they occur. You may even have some online sales and may or may not collect sales tax. Up to this point, you’ve probably considered your business more or less protected. Even though you don’t literally have insurance against errors, do you really feel assured that your bookkeeper’s records are good enough for this pending sales tax audit?
Shockingly, you receive an unexpected penalty (could be as much as $30,000 or more) for missing exemption certificates, and undercharged sales tax rates. Gulp….what’s next?
Sales tax impacts just about everything you sell: digital goods, services, dog food, and even candy. It’s 45 out 50 states and the tax laws are constantly changing. Because of the frequent changes in each state, it may start to affect companies that do not have exposure today. Sales tax provides critical revenue for states. Other than property and income tax, sales tax is the largest source of tax revenue in the majority of the 45 states that collect it. From a state government perspective, making sure each and every sales tax dollar is collected, through audits, fines, penalties and well-developed rates and rules, is simply good business. General sales tax constituted 30.5% of total state government tax collections in 2012 (2013 numbers will be released shortly). When combined with selective sales tax as applied to fuel, liquor, etc., that percentage rises to 47.1 percent. It’s easy to see why sales tax is both a major source of funding and uncollected sales tax is on the radar of budget-strapped states.
Dealing with sales tax is a costly and time consuming task. Whether it's calculating, collecting, remitting, filing or tracking exemption certificates, sales tax holidays, or product taxability none of it adds to your bottom line.
It’s easy to be lured into a false sense of compliance when it comes to sales tax. By understanding the “deadly sales tax sins” and developing tactics to address them, you can proactively safeguard and prepare your company for an audit.
Our Sage 100 ERP consultants often refer to the tax experts at Avalara when clients face sales tax challenges or audits. They have identified seven common errors with potentially devastating consequences, including:
• Misunderstanding consumer use tax
• Using incorrect rates, rules and boundaries
• Filing the wrong forms or remitting late
These seven deadly sins of sales tax are common sales tax errors with potentially devastating consequences. Each sin listed below is followed by remedial actions.
So can you ask yourself this, what level of commitment do you and your team have to implementing new ERP software? Are you not only convinced you’ve found the right software but are you committed to achieving the shared goals of being more efficient, more productive, and more profitable?
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