The reality is, sales tax is about managing risk. With over 14,000 tax jurisdictions and hundreds of thousands of tax laws, it’s challenging for a business to maintain 100% compliance. This comes with good news and bad news. The bad news is this complexity doesn’t mean state auditors are lenient when they’re going through the books. The good news is there are lots of resources and best practices for navigating this risk. We recently held a webinar on this topic, which we’ve summarized in this post. In this post, we’ll review when to comply with sales tax and some steps to perfect your practices.

If You’re Not Currently Paying Sales Tax

First of all, don’t panic. Reading this post is a step in the right direction of protecting your business from sales tax liabilities.

To get started with sales tax compliance, there are indicators for a business to look for which will signal it’s time to get compliant. If your business is growing, These warning signs can even alert you to the if/when states will come after you.

However (gulp), the longer you wait to get your compliance in order, the heavier the burden becomes, especially as legislation like the MFA (Marketplace Fairness Act) are being reintroduced into the Senate and the House. While it’s uncertain what these implications will have for eCommerce businesses, it’s evident states are looking to find their piece of the pie. This means whether you’re business is big or small, you’re at risk for audits, and that risk is likely to increase. (Don’t panic, we have some resources for audits!)

When to Comply

When a business decides to not comply with sales tax, it takes on a lot of liability. If this business were to ever be audited by a state in which they owe tax, those obligations and penalty fees would be paid out of pocket, regardless of size. This is also true for past sales tax obligations. If a business were audited, they could be responsible for historical sales tax, as far as six years back! This could be, and has been, devastating for some businesses. Additionally, states are becoming more tech-savvy, which means they’re continuing to find new ways to cost-effectively audit companies.

Key Indicators It’s Time to Comply:

A business is registered for other taxes but not sales taxes

A business advertises heavily in the public spotlight

A business has been successfully audited by a jurisdiction in the past (Chances are, they will come after a business again!)

A business isn’t registered in its state of residence

Be aware that when DOR employees buy online, they often check sales tax.

If you’d like to learn more about becoming sales tax compliant, check out this Sales Tax 101 guide. It will walk you through the specific steps to getting your business armed and ready for sales tax. Have questions? Don’t forget! We’re here and happy to help.

How to perfect your practice:

Get compliant! There are lots of options for businesses big or small to do this!

If you are an Amazon seller using Fulfillment by Amazon, you could be looking at many states with Nexus. You can access your account to see where your products are being stored .

Don’t wait for the MFA to be passed to get compliant, states are getting smarter and building your burden could crush your business. Audits can also go back years, so what you are, or are not, doing now can come back to haunt you.

Remember, not being compliant can make your business a target for acquisition and an audit.

If you want to learn more, go check out the Webinar here.