Running a business can be stressful, like sailing on the open ocean. Waves and winds are constantly changing, forcing you to continually adapt. And one of the largest recent waves across the U.S. market is the Supreme Court decision on South Dakota v. Wayfair.
The details of this decision are fairly involved. In overview, the journey started in 1992, with Quill Corp. v. North Dakota, regarding the standard for sales taxes and interstate commerce. The final appeal challenges South Dakota’s application of its sales tax to internet retailers who sell into South Dakota, but who have no property or employees in that state. The Court's June decision in favor of South Dakota's legislation was given alongside recommendations for legislators to come up with long-term solutions.
To help you navigate this huge change, Scott Peterson of Avalara has written an article for RetailTouchPoints.com. The central principle he explains is that the recent and ongoing changes in tax legislation require your business to confront tax issues with a thorough, reliable process. Like an ocean, the waves are never steady, so you must establish a system to cope with this ongoing fluctuation.
The nine main features of a well-balanced tax handling process are:
1. Understand each state’s tax laws and know your nexus - Physical presence as the test for nexus has been joined by "extensive virtual presence". Obviously that puts a lot of attention on what the exact meaning of "extensive" is. States are starting to pass more laws basing sales tax obligations on the number of sales or amount of monies.
2. Heed changing filing requirements - States are gradually shifting to e-filing. Make sure that your tax process keeps you updated about current payment options and requirements.
3. Track required prepayments - An increasing number of jurisdictions are turning to PRE-payment for larger tax liabilities and existing pre-payment laws have schedules ranging from 1-4 payments a month. Your process must be flexible and must stay tuned in to the evolving demands.
4. Reconcile your sales tax payable account - The process you adopt must keep the books accurate as well.
5. Regularly confirm filing frequency for each state - Government agencies are more frequently using email and notifications on your tax account to handle communications. But even if a message gets lost en route, you will still be held accountable. In your tax process, include a way to proactively verify your deadlines.
6. Accurately tax new products - This variation to your processes arises directly out of your success. So, well done! But a new product line might entail new complexity for taxation. It's entirely possible that a product is taxable in one state, but exempt in another. As you roll out the new product, make sure its tied into your tax process to verify all the details. Similarly, when you expand sales to a new state, don't assume that the tax obligations will be the same as what you're used to.
7. Stay current with exemption certificates - An easy audit target is tax exemption certificates that are incorrect, misplaced, or expired. In your tax process, be sure that a step is focused on keeping these records watertight.
8. Respond to notices promptly - When a government agency tries to contact you, they take themselves very seriously. Not responding in a timely manner can result in levies, liens, and suspensions. Along with the large-scale changes, your tax handling process must address needs that arise on a day-to-day basis.
9. Use exact location, not ZIP codes - As states continue to refine their taxation requirements, it may be increasingly common for a single postal code to have multiple sales tax rates. Not only does your tax process need to stay up to date on these developments, but your calculations need to be accurate. It's the only way to avoid audits, penalties, and return reconciliations.
As Peterson suggests in conclusion, your protocols for handling tax responsibilities don't need to re-invent the wheel. There are a variety of tools already developed to automate sales tax chores and protect your company from audits. Leverage these technologies to ensure tax compliance and boost your company growth.
Going one step farther in your company progression, after a solid taxation process and high quality tax-handling tools, the pinnacle is to have tax functionality integrated into your business operations software. This is where the benefits of computerized automation shine even brighter. Your tax support keeps your business ship-shape while the accounting, CRM, and ERP software accelerates your business velocity. You can concentrate more of your team's attention on the tasks that boost profits. Learn more today about how the aACE business suite integrates with AvaTax.
"aACE was able to customize a few key components for us very intelligently that now just work. Exactly the way we need them to." ~ Derek Navratil, IT Administrator, Janibell Inc.