New markets, products or services raise taxability and nexus issues as well as collection requirements.
It is essential that new businesses understand their Sales & Use Tax collection and payment requirements early on. New businesses can avoid potentially devastating problems by knowing which of their products and services are taxable, and which business activities today, or with growth in the future, will trigger nexus in additional states. Having this knowledge allows businesses to set up sound compliance procedures accordingly.
Knowing what can trigger nexus is important because sufficient nexus allows states to require a business to collect tax on the state’s behalf. Many businesses do not realize that a permanent presence in a state is not the only circumstance that may trigger a requirement to collect Sales Tax. This puts an additional compliance burden on the business. Left undiscovered, Sales & Use Tax exposure in other states will continue to grow and compound with interest, penalties and potential personal liability.
It’s important to remember that paying Sales Tax is the customer’s responsibility with the business acting as the state’s custodian. If businesses fail to collect the appropriate tax from their customers, the tax becomes their liability.
For growing businesses, Sales & Use Tax problems often build over time. Businesses start selling in just one state without having any physical presence in other states. They have a revenue and business focus, so facing Sales & Use Tax issues is often left for “later” or for the accountant to handle. See our Generalist vs. Specialist page.
Expanding your business into additional states often accompanies growth. Sales force and marketing expansion, Internet sales, wider delivery of goods or services, attendance at trade shows, employees residing in other states, and other such activities can trigger nexus. Adding new products, services and different types of customers further complicates the situation. New taxability issues may be either unfamiliar or completely unknown to you and further compound the undiscovered tax liability exposure previously mentioned.
Most states can look back to day one of operations when auditing a business that has never filed a Sales Tax return.
If planning to grow their business and sell or go public, smart business owners start with the end in mind. They will stay focused on the fact that the business will eventually go under the microscope during a Due Diligence Review from the potential buyer’s or underwriter’s financial advisors. One purpose of the Due Diligence Review is to protect the purchaser from hidden liabilities through discovery. Should hidden liabilities be uncovered, the result will typically be a lower selling price or higher required escrow amount. Proactive owners can ensure a favorable Due Diligence Review by addressing Sales & Use Tax issues from day one. Read more on this in the Mergers & Acquisitions section.
Whether your business is just starting out or is long-established, Sales Tax Colorado’ professionals can help. We assist with the taxability determinations to establish what’s taxable and what can be classified as exempt. Client’s call on us to handle nexus reviews to determine in what states there may be an obligation to collect and remit. We also develop procedures for proper compliance including handling resale certificate and collecting the correct amount of Sales Tax. Some clients need help determining which automated compliance software or systems are best for them. Outsourcing some or all of the compliance process is another big decision about which we provide informed input.
At Sales Tax Colorado we serve businesses that want to keep their competitive edge by navigating the ambiguous, constantly changing, and highly intricate maze of Sales & Use Tax regulations.
Clearly, it’s best to get your business in order early. If that hasn’t happened, we can still help. Contact us today for a no-obligation consultation to discuss your situation and the potential remedies.
