Are you a business owner taking a DIY approach with your sales tax? Before you get complacent, learn about the risks to be fully prepared.
Setting the Stage…
People often take a DIY (do-it-yourself) approach in the sales tax world. There’s an underlying assumption that DIY solutions are a cost-effective way to solve challenges that arise, which is true in some situations.
But often, e-commerce sellers, business owners, and online retailers will find themselves in over their heads with sales tax. Businesses expand, missteps happen, complexities arise, and before you know it, your DIY project has gone terribly wrong.
The Story of Bob
We’re going to talk hypothetically for a moment.
Let’s talk about Bob.
Bob started an e-commerce business; initially, the sales tax aspect was pretty straightforward. He had an easy handle on his sales tax obligations.
He had looked through a few different sales tax process options but ultimately decided to rely on his own ability to figure things out; wing it! “I can do this!” he exclaims as he pumps his fist in the air.
Life goes on, and things with his business start picking up. Bob's business has shifted to selling nationwide rather than just in his home state. He’s ecstatic with the wild success!
But some time passes, and he is filled with a growing sense of unease. Tax talk is growing, and word on the streets says that audit activity has increased…
Thoughts of a crazed State Tax Auditor busting down the door and hauling away records for ruthless scrutiny fills Bob's head and sends shivers down his spine.
He frantically pulls out his laptop. A website pops up offering a “Nexus Review.” With a sigh of relief, he fills out the needed information, thinking he has found the easy answer to his concerns.
The answers come back bleak... According to the software calculation, he needs to get registered in 10 states and enter a VDA in 15 states. Oh, and also… he needs to file historical registration, returns, and backpay taxes for that period of time with penalties and interest.
His world tilts as his eyes go unfocused. He slumps into his chair; the overwhelming burden of sales tax obligation crushes him completely.
Alright, so Bob’s scenario may be a little extreme, but it’s not unheard of.
In this hypothetical situation, Bob has a few choices. He can:
- Ignore it. Close the laptop and continue on with his business. Maybe if he pretends it’s not there, the liability will go away. (Spoiler alert, it doesn’t…)
- Fill out the forms, register in more states, pay the fees, and take a massive hit to his bottom line in the name of compliance. His business suffers, and so does he.
- Contact a professional. Resolve the issues with a few adjustments and find a way to comply without cutting into his bottom line.
If you’re on the edge of your seat wondering where Bob’s fate lies, you can relax. Bob picks C.
The Dangers of DIY Sales Tax
Often, people will call us already knowing their nexus and taxability: They know where things went wrong and don’t quite know the next step.
Like Bob, sales tax issues will arise no matter what you do. Why?
- Sales tax is complex and time-consuming, and as business owners, keeping on top of it all is almost impossible.
- The risks of making mistakes are high as the sales tax landscape, rules, and regulations continue to evolve—audits, penalties, and interest lurk behind every un-collected and un-remitted transaction.
- The cost of non-compliance comes at a steep price: financial and sometimes even reputational damage.
“There’s confidence in collaboration:
As a core value at Peisner Johnson, we genuinely believe there is confidence in collaboration. Why? It allows multiple individuals or teams to bring their unique perspectives, skills, and expertise to a project or problem. Collaborators can leverage strengths and compensate for weaknesses, leading to better decision-making and more effective solutions.
Additionally, collaboration can provide a sense of support and camaraderie, making it easier to handle challenges and obstacles that may arise.
It is always best to consult an expert when sales tax issues arise. We can guarantee that there are experts who will offer you free consultations with no strings attached. We know this because we do it all the time.
As a business owner, your time and resources are valuable, and navigating the complex world of sales tax can be overwhelming and costly. By consulting with a professional, you can ensure that you are correctly registered, accurately collecting and remitting sales tax, and avoiding potential penalties and audits. Collaboration with experts ensures compliance and peace of mind, allowing you to focus on growing your business without the added stress of sales tax obligations. Remember, it's always better to be safe than sorry when it comes to sales tax. Be like Bob. Consult with the professional, get your answers, and continue to succeed. You can also learn more about this subject from this podcast episode.