The Year-Round Tax Problem

The Year-Round Tax Problem

Our comparison guide to sales and use tax solutions

While this is the time of the year when income taxes capture everyone’s attention, sales and use taxes make themselves annoying all the time.

The ubiquity and variety of these sales and use taxes creates problems for everyone — the customer, your client and your practice. While most accounting software today provides at least some modicum of sales tax tracking, unless your client conducts business in a single taxing authority with fixed rates on all taxable items, the integral sales tax capabilities of many products are just not going to do the job, so your clients (and you) may still need to have a research service in place to determine the taxability of transactions.

And that doesn’t begin to address the necessity of dealing with non-taxable entities such as nonprofits, which have sales tax exemption certificates. If your client has dealings with many entities that have exemptions from sales and use taxes, a software application that stores and tracks exemptions might be worth investing in.

But we’re just getting started. Many of your clients will have multiple locations, or even multiple states or even countries, all with different tax rates, and quite possibly different ideas of what goods and services are taxable and which are not. Add in clients whose sales or services are in locations where there’s one tax piled on top of another, such as state, county and municipal sales taxes, and you have the beginnings of a massive headache.

Worse still, if your client has a significant customer base in other states or even countries, they may be subject to nexus and have to collect sales tax or VAT for those distant tax jurisdictions. Figuring out if your client is subject to nexus in other jurisdictions is seldom an easy task, and is another impetus to add sales and use tax software and research services to your toolkit.

Of course, your client can just take a chance and collect (and remit) whatever seems appropriate. But accurate sales and tax collection records are a must for any of your clients that are required to make such collections. Sales tax audits are a major source of income in many taxing jurisdictions, and poor recordkeeping can place your clients in a perilous position where just a few errors in collection over several days can result in the auditor imposing that error rate over an extended period of time and sales. Read more on Accounting Today.