In this video, Interstate Tax Strategies of Atlanta, GA (770-985-9573) provides an overview of multistate sales tax and the obligations companies have for complying with sales taxes and why many companies have more tax exposure than they believe.
States are projected to collect over $229 billion in state and local sales tax during 2014. Nationwide, sales tax represents about 38% of total state revenue. As states look for additional revenues, sales tax is quickly becoming the first place they look. States are becoming very adept and aggressive at identifying unregistered businesses that are doing business in their state. Most states focus their attention on unregistered out-of-state businesses because they represent larger tax collections when they're audited and a source of reoccurring revenue once they become registered. In addition to assessing back taxes, the states will also assess significant interest and penalties when these companies are audited. If you're a multistate business and you've not been diligent about your company's sales tax responsibility, now is the time to evaluate your obligation and quantify any tax exposures you may have.
States are also increasing sales tax revenue by changing their laws to increase sales tax rates, remove exemptions and expand the tax base to include personal and professional services. The area of cloud computing and software as a service are quickly becoming popular items for states to tax. Even if your business may get revenue from customers in many states your business usually only has a tax collection responsibility in the states where you have some type of physical connection, or what we call nexus. A company creates nexus in a number of different ways. The following activities are just a few of the common ways that company's can create nexus in other states. This is by no means an exhaustive list. Companies create nexus when they send employees into a state to solicit sales, use independent contractors to solicit sales or perform services in another state, when they own inventory or other personal property in the state, when they own or lease real property in the state, or when they make deliveries in their own trucks into the other state.
When a company has nexus in another state, it's subject to the same sales tax rules as those businesses with a permanent location. Just because your business has nexus doesn't necessarily mean you have a sales tax obligation. Your business still needs to be selling a taxable product or a taxable service in the state before you have a tax collection obligation. If you're a wholesaler and sell to non-taxable customers then you must have valid resale exemption certificates from each customer in the state where you have nexus. If your company is audited, the burden is on you to produce the documentation necessary to support your non-taxable sales. If you cannot produce the correct documentation then your non-taxable sales will become taxable and you will be assessed the back tax, interest and penalties on these taxable sales. If your business is charging sales tax in the other states then you need to make sure that the tax your charging is calculated on the correct tax base and that the correct tax rate is used. Sales tax rules vary widely between the states and they frequently change. Even small businesses with limited sales in other states may be subjected to these burdensome tax collection rules if they have nexus in another state and are making taxable sales.
Now is the time for your business to analyze these issues to determine if you have a current or historical sales tax liability in any other state. Making these determinations can be challenging but that's what Interstate Tax Strategies does everyday for our clients. If you have any questions about this video or would like a no cost, 30-minute assessment of your particular situation please contact me from our website. I'm happy to spend time discussing these issues with you or your CPA.
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