Sales and Use Tax Compliance Crucial in a Down Economy
Posted 5-20-2009 | By Teri Grahn | Download Article
As seen in Minnesota Business Experts' Forum
With the complexity of sales and use tax laws and with most states, including Minnesota, short on revenue, now is the time to make sure you have sales and use tax procedures in place to remain compliant and to avoid steep penalties in the case of an audit.
History tells us, when the state is low on revenue, we can expect an increase in sales and use tax audits. Sales and use tax noncompliance is often a result of not staying up-to-date on constantly changing sales and use tax laws, or not clearly understanding the complexity or the differences in the laws when doing business in other states. It is the responsibility of the business to make sure they have appropriate sales and use tax systems in place to remain compliant.
As companies continue to cut staff in this economy, too many accounting departments are overlooking the importance of consistently monitoring sales and use tax. Although sales and use tax procedures often present an administrative nightmare, it should be the responsibility of a designated employee.
This role is crucial for compliance with responsibilities such as staying up-to-date on the laws, reviewing invoices, accruing tax, developing a tracking system for record keeping, making copies of invoices and filing timely and accurate sales and use tax returns.
Every invoice must be reviewed for appropriate sales and use tax charges. Noncompliance often occurs when businesses make a purchase (whether on the Internet or in another state) and the business is not charged their state's sales tax.
The responsibility to self-assess the correct tax falls on the purchasing business. With the additional Hennepin County and Transit Improvement Tax, organizations are dealing with another level of sales and use tax compliance in Minnesota.
A process should be in place to review all purchases and sales to determine the correct sales or use tax amount, when to charge sales tax, when to pay use tax, and who may be exempt.
If your company conducts business in other states, there are many more considerations due to nexus. Nexus is the degree of business activity that must be present before a taxing jurisdiction can impose a sales tax on business transactions. Sales and use tax nexus is dependent on your company' presence and activity in a state and on each state's tax laws.
Solicitation of sales or taking of orders in another state by employees, salespersons or a company representative is enough for a state to require you to collect and remit their sales and use taxes.
If a state declares your company has nexus and no sales tax returns are filed, most states can go back more than three years to assess tax, penalties and interest on sales made without collecting sales tax.
With many states facing budget deficits, enforcement of multi-state tax filing is becoming more aggressive. With the proper systems and procedures in place to monitor and review sales and use tax, compliance is manageable. Refund opportunities also exist.
Too many companies are missing out on sales and use tax refunds, or may be paying vendors unnecessary sales tax because they are unsure of the regulations.
Please contact Teri Grahn, Sales and Use Tax Specialist, HLB Tautges Redpath, Ltd., with questions or comments at tgrahn@hlbtr.com or 651-407-5889.
TERI GRAHN
Sales and Use Tax Specialist
HLB Tautges Redpath, Ltd.
tgrahn@hlbtr.com