State & Local Tax Blog

Filing State Sales Tax Returns – FAQs

Doing business in multiple states? That’s great! But that also means a lot more state sales tax returns. You might think to yourself, “how hard can it be?” The short answer: it can get pretty complex. Keep reading to learn why filing state sales tax returns might be best left to the professionals.

Thanks to the South Dakota vs. Wayfair Inc. Supreme Court case, a lot more businesses have a responsibility to collect and remit tax in a lot more states.

Essentially, this court case made the core of South Dakota’s “economic nexus” legislation the law of the land nationwide. These laws dictate that sellers are liable for the collection of sales and use tax if they meet or exceed a state’s economic threshold. It’s no longer about where your business is located, it’s all about where your customers are located.

Companies reach this threshold if they sell a certain amount of personal or electronic property into the state in a given year – or if they make a certain number of transactions per year in the state.

As a result of this ruling, every sales tax state now has its own economic nexus legislation on the books. Now, you no longer require just a physical presence in a state to have a responsibility to collect and remit state sales tax. If you sell into that state, you could have sales tax responsibility. So, the question becomes, “how do I find out?”

How Do I Determine if I Have a State Sales Tax Responsibility?

“Start with Nexus.”

The first step in any state sales tax return filing endeavor is to find where you have a responsibility to collect and remit that tax. Once you know the states that you have nexus in, you can start to collect and remit tax and file state sales tax returns.

But you’ll soon find that this process is more complicated than imagined.

States and local jurisdictions set their own rules for sales tax collection and how that tax is remitted. That means there are hundreds of rules for forms, dates, frequencies and processes. If you have nexus in several states, you may have to file dozens of tax returns monthly, if not more. You may imagine that you would never file more than 40-50 returns, but it could be hundreds due to local jurisdictions that administer their own sales tax law.

To manage this new workload, a lot of companies will sign up for an automated filing state sales tax service. These solutions have come a long way, and they’re great tools to use if used correctly. Here’s what we mean.

Should I Use State Sales Tax Automation to File Returns?

There are a lot of automated solutions out there on the market. Again, they’re great at what they do – applying accurate sales tax rates and taxability to all your products and services on every transaction. In other words, they’re great at tax collection tasks.

But being compliant involves collecting AND remitting that state sales tax. Where automated sales tax solutions tend to fall short is on the remittance side of the equation.

These automated solutions may file inaccurate returns for various reasons. This can mean one of two things:

  1. Remitting too little (which would get you into trouble in an audit)
  2. Remitting too much (which means money out of your own pocket)

Why does this happen? Well, when you think of automation, you typically think of a set-it-and-forget-it solution. But that’s not necessarily the case with automated state sales tax solutions. They can make mistakes.

You need to check the system’s work. If you don’t, it could lead to potential headaches down the line.

How Do I File My Own State Sales Tax Returns?

If you plan on filing your own state sales tax returns, you need to make sure you have your ducks in a row. Contact each state that you have nexus in to make sure that you’re up to date on the latest filing requirements. Set up your filing process or automation to meet those specifications. (And always make sure that you’re double-checking the automated solution.)

All of this is doable with the right amount of time, resources and expertise. The problem is, not a lot of companies have all three of those things when it comes to state sales tax. And that can lead to mistakes and filing incorrect returns.

What Happens When You File an Incorrect State Sales Tax Return?

When companies opt for an automated solution and treat it as a set-it-and-forget-it solution, a negative feedback loop can occur.

When your automated solution files an incorrect state sales tax return, a state will usually auto-generate a notice and send it out in the mail. Notices can range in their severity. But most notices, regardless of their severity, require a response by a certain date.

If you don’t respond, another notice gets generated. After that, the state is likely to escalate the situation, taking action that can hurt your business – meaning possible account freezes and liens on your business. These notices can quickly start to pile up if you’re not checking on your sales tax automation – thus creating the negative feedback loop.

Filing state sales tax returns is a big undertaking, especially when you’re first getting started. If it feels like too much, that’s okay. Your job is to run your business. Leave the state sales tax returns to the professionals.

Conclusion – The Value of a State Sales Tax Professional

When it comes to filing state sales tax returns accurately and on time, it can be downright frightening to look at the mountain of work in front of you.

That’s where a state sales tax professional can help – even if you have an automated solution. A state sales tax professional can accurately prepare and file all of your state sales tax returns on time. A professional can also work with you on your automated solution to make sure that it’s correctly applying, collecting and remitting that tax.

The bottom line: Outsourcing your state sales tax returns saves you time, money and headache – giving you peace of mind.

Schedule a “What’s Next?” call with us today to see how we can help you with your state sales tax return filing process.

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