State & Local Tax Blog

Sales Tax Compliance: 3 Issues You Might Be Overlooking

There’s more to sales tax compliance than filing returns and conducting a one-time nexus review. In this post, we break down common compliance issues that many online businesses tend to overlook.

How Your Nexus Changes Over Time

A key part of sales tax compliance is conducting a nexus review, which looks at every state where your business has made sales to see if you’re responsible for collecting and remitting tax.

But one thing you might not realize is that this isn’t a one-time event. Nexus changes over time as your business grows and tax regulations change.

So, while a major nexus review is necessary if you’re just starting your compliance, you should conduct regular periodic nexus reviews to stay on top of your sales tax responsibility.

The frequency of these reviews will vary depending on the size of your business and the states where you sell your goods and services. But it’s always a good idea to review your nexus during rapid increases and decreases in revenue. That’s when you’re most likely to develop nexus in new states, which would require you to register there – or lose nexus, which may allow you to close your sales tax accounts.

Tracking Deadlines

A key part of tax compliance is tracking and hitting deadlines for your returns. Missing a sales tax deadline can have severe repercussions.

But like nexus, sales tax deadlines aren’t static. They change more often than you might think.

For example, you only have to look back to last year when the pandemic forced states to revise their deadlines.

Similarly, your deadlines won’t all happen at the same time or in the same interval. You might have annual returns in one state, quarterly returns in another and monthly returns in yet another. In fact, it’s fairly common for large eCommerce businesses to have continuous deadlines throughout the calendar year.

What all this amounts to is a chaotic, difficult-to-track system that you need to monitor with 100% accuracy. Many businesses simply can’t keep up. Without an effective process for tracking and hitting these deadlines, your compliance (and financials) will suffer.

Ongoing Audit Preparation

If you’re reading this post, you understand that sales tax compliance is an ongoing responsibility you need to stay on top of to protect your business.

But what you might not realize is that audit preparation should be a part of your regular compliance efforts.

When it comes to state sales tax audits, it’s a matter of if, not when. When you are audited, the state will expect you to provide a paper trail of documents that proves your compliance. This could include:

  • Connections from core business transactions to lines on tax returns
  • Tax exemptions certificates
  • Marketplace exemption certificates
  • Support for write-offs and other adjustments
  • Copies of filed returns and supporting data

The catch is that this paper trail is easy to build as it happens, but extremely difficult to fabricate retroactively. If you wait three years to document tax exceptions, you might find that the exemption certificates are lost forever.

Beyond building a paper trail, you’ll also want to consider your audit defense strategy. Who will be the point of contact for an audit? Will you hire an outside consultant to help you in your defense? These questions are all easier to answer before you receive an audit notice.

A state audit defense is a tough job. If you maintain your paper trail and plan your strategy ahead of time, you’ll find the defense much easier.

Conclusion

Getting sale tax compliant – and staying that way – has never been more complicated. While your business might be focusing on compliance, it’s likely there are a few small but important details you’re overlooking. Many eCommerce businesses struggling with this problem turn to sales tax specialists for help.

Looking to fine-tune your sales tax compliance? We’re here to help. Fill out our short What’s Next questionnaire to get in touch for a free 45-minute consultation.

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