In 2014, surviving sales tax changes is harder than ever. Broadening definitions of nexus, changes in product taxability, new sales tax holidays – all of these make it hard for even the savviest business to grow without increasing its risk of incurring penalties in the event of an audit.
If just thinking about sales tax makes you hyperventilate and break out in a cold sweat, try to relax. The truth is that even though there are literally thousands of changes across the states every year, there are things that you can do to maximize your chances of doing sales tax right, and minimize your exposure in an audit.
Consider this: on average, a third of all state budgets are comprised of revenues from sales and use taxes, second only to individual income taxes. If you add in so-called “selective sales taxes” (sometimes called “sin” taxes on alcohol, tobacco, gasoline, and so on), revenues from sales taxes account for just less than 50% of the average state’s budget – money that funds schools, builds roads, pays for police, fire, and emergency services, and many other services that we take for granted from our state governments.
In 2013, it’s estimated that states faced a budget shortfall of nearly $55 billion, of which approximately $23 billion is represented by uncollected sales taxes. If you had a traditional bricks and mortar store in any of these states, you wouldn’t question collecting sales tax and remitting it to the state. Yet, because the pace of innovation on the internet has far outpaced the law’s ability to keep up, internet merchants have for some time now been able to skirt the requirement to collect and remit tax on some sales in some states. States are becoming more and more aggressive about passing laws aimed at expanding their ability to require remote sellers to collect and remit sales tax, and defending those laws, often with great success, in the courts.
In 2014, many of these trends will likely continue. The tactics needed to survive sales tax in 2014 are directly related to preparing for the worst (audit), while achieving the best (accurate sales tax processes). Some potentially tough sales tax challenges include:
- Broadening definitions of nexus and increasing requirements for out-of-state sellers
- Understanding and following changes in product and service taxability
- Finding the right sales tax rate to charge customers
- Tracking sales tax holidays
- Managing exemption certificates
- Identifying the forms and remittance processes for each taxing jurisdiction
- Preparing for an audit
- Switching from an error-prone manual sales tax management process, to one which is automated and streamlined
Addressing each of these in appropriate detail would take us far beyond the limited scope of a blog post. But, take heart! The sales tax experts at Avalara have assembled a guide for you that will look at each of these challenges in depth, and point you at resources that will help you successfully navigate the increasingly complex waters of sales tax compliance. You can download Avalara's Surviving Sales Tax 2014 here!