When it comes to handling sales tax, small businesses need to be sure that their collection is for the right amount based on the transactions that your business has processed. Yet when it comes to paying your sales tax, there are a variety of key points to keep in mind. After all, your business needs to make sure that they are being credited properly for the sales tax with their state tax agency. The implications of not paying sales tax could mean your business faces collection efforts by the state and may even be banned from doing business in that state.
So what are some of the methods that you need to have in place to make sure that your payments are being credited properly? Here are a few that we found to be key in terms of filing and paying your taxes.
Check Your Checks
When it comes to paying your sales tax obligations, it is important to make sure that you have a system in place to receive notification of your sales tax liability. If these checks and systems are not in place, notices could be misplaced and could result in penalties for an outstanding sales tax balance.
Then if you hire new staff or part-time staff, it is important to make sure that you train them on your system and follow through to make sure that they have done them properly. Another key point is that you need to be sure that you are also tracking all your receipts and backup for each of your filings. This is key, because it can be helpful if you receive a notice of non-payment from one of the various states that you conduct business in.
Track Your Filing Frequency
If you are doing business in multiple states, then it is even more critical that you are tracking your filing dates. Take the time at the beginning of the year to confirm all the filing dates for each state and their frequency. While many jurisdictions send notices to taxpayers several months in advance, especially if they are changing the filing dates, you may not always receive them. If you don’t receive the notice, you are still obligated to meet those adjusted filing dates.
Therefore, do your homework and make it part of your process to check on these dates annually. By doing so, you can make sure that you are filing and sending in your sales tax payments promptly and they are being credited properly.
Know What is Exempt
Certain transactions are exempt, but before you take someone’s word for it, get a copy of their exemption certificate. Make sure that as part of your annual process you are updating those certificates regularly. If your company has changed its name or made other changes, then you may need to get updated exemption certificates. Check with the jurisdictions that you conduct business in, as they will have the information you need to determine what certificates you need and from who.
Just remember, not all transactions will need to have sales tax collected. This could be because of the type of transaction and the customer themselves. For example, non-profits may not be subject to sales tax. Therefore, you will need to be sure that you are confirming exemption status for your customers before you do not collect the sales tax for those transactions.
New Product Offerings – Understand What Needs to Be Taxed
The reality of sales tax is that it varies from state to state. So you will need to be sure that you know the laws of the states that you operate in, especially if you are going to be offering a new product or service. Depending on the state, the new product may be exempt in one state, but taxable in another.
Whatever point of sale program you have, it is important that it is up to date based on the location of that portion of your business. If you have multiple locations across state lines, you will need to make sure that you are keeping up with the various laws in each state.
As you can see, there is quite a bit that falls on a business owner who is required to collect sales tax. Therefore, it is important to set up a procedure for handling the collection, filing and payment of sales taxes to the states or jurisdictions that your business operates within. With procedures in place, you can make sure that you are meeting your obligations regarding sales tax.
James Wells EA MBA Tax Office