If you know me professionally, you know I’m an industrial engineer, love the process of business, and am always seeking ways to do things more efficiently and effectively at lower costs. You know my career has been focused on distribution and manufacturing processes and that in addition to paying attention to a specific part of a process, I also need to understand who and what is being delivered to the process and who or what the process needs to deliver to the next process.
With this in mind, I was recently working with a client entering sales orders, and we started talking about sales tax and sales tax certificates. “How do you know if the customer you’re sending to has a tax certificate and that the order shouldn’t be taxed?” I asked. You can guess how that conversation went …
Sales tax management is a necessary evil in business, but most companies don’t give it the attention it deserves until it’s too late; in fact, most companies manage sales tax manually, which is vulnerable to human error and can lead to an audit. Audits are expensive, not only in the fines that can be levied but also in the amount of time it takes to go through the audit, so sales tax management must be done right to prevent audits. Unfortunately, keeping up with sales tax rules is a daunting and never-ending task.
Even the sales tax rules within an industry vary from state to state. Industries such as digital goods, services, medical devices, and foods/beverages are examples of where this is true. As state and local governments look for ways to generate revenue, another concept that’s changing is nexus; nexus is the determining factor of whether an out-of-state business selling into a state is liable for collecting sales or use tax on those sales into the state. Some states require companies to claim nexus for activities such as maintaining inventory, trade shows, affiliates, drop shipping, etc.
The good news is that there are solutions available to address the business need of sales tax management. As part of a value-added reseller team, it’s important we talk to prospects and clients about the possible need to better manage sales tax; even if the products and services sold aren’t taxable, exemption certificates still need managing.
Have questions about managing sales tax? Contact us today.