This post was written by Sam Brotman of Brotman Law.
We live in a world with lots of rules, and the regulations governing SALT (State and Local Tax) are among the most complex. This can be a real nuisance, especially for small business owners in the $100k to $5m revenue range. Multistate sales tax, in particular, gives many small business owners a huge headache. The bad news is unless you’re in full compliance with the law, this issue can trigger a sales tax audit and leave you with a big bill to pay. It’s not always easy to get ahead of the compliance requirements, but I recently got a demo of the TaxJar software and I believe it can be very helpful.
The Multistate Tax Mission
State authorities are currently dealing with a number of issues associated with multistate sales and use tax compliance. One of the biggest targets of sales tax compliance right now is businesses in other states that are shipping goods into the state in question. California, for example, which is my home state, is notoriously aggressive about other states shipping goods in. The reason for this is it creates either liability for seller to collect the sales tax, or for the buyer to remit use tax. For many small businesses operating online it can be especially challenging, because a lot of times they ship into multiple states, unwittingly creating potential liability.
How to Improve Compliance
To avoid situations like this that could lead to the pain of a sales tax audit, it’s important for small online companies to try and improve their multistate tax compliance. TaxJar is really easy to use, because it connects with your shopping cart, collects customer data from the cart, and—best of all—it automates your state filings for you. TaxJar can refer you to tax professionals who will help you register in states for sales and multi-use permits, if there is a registration requirement. The integration of the software is otherwise seamless.
Get Proper Protection
SALT compliance is one of those areas small business owners often tend to neglect or overlook, but the reality is that states are becoming more aggressive about this. Take Amazon’s 2011 experience, for example, when new legislation put an end to the online giant’s days of tax free selling in California. Amazon now charges sales tax in almost every state, and even smaller businesses are being affected. It’s essential to make sure your company is properly protected, and anything that automates the process is a tool I’d recommend using in order to ease the admin burden on your business.
A Cautionary Tale
A client of mine is a classic example of this situation, and it’s something of a cautionary tale. The company, which was selling goods on eBay, had no relationship to California other than having customers in the state. As a result of their other business operations, however, they ended up with $25,000 sales and use tax liability. If the business owner had used a program like TaxJar, he would have saved himself the time, energy and money involved, as well as avoided having to defend himself in an audit and ultimately end up with a liability.
Finding Tax Support
One of the great reasons for people to use TaxJar is that it takes care of all the basics for sales and use tax, automates the process and makes it quick and easy to understand. For those individuals doing more complex transactions or a very high volume of business, they might want to utilize the services of a firm like ours to help with sales and use tax planning work, in addition to a program like TaxJar. This makes us a very complementary service for a program like TaxJar, because we can help companies to streamline their sales and use tax compliance, which is all critically important. If you don’t use a program like TaxJar, our firm also represents people in sales and use tax audits, examinations and high dollar collection issues.
It’s always best for businesses to do voluntary compliance and solve their tax problems themselves, and the best way to do that is obviously to prevent them in the first place. The California sales tax auditors are a particularly difficult agency to deal with, and their methods for determining unreported sales tax are varied. In addition, they can shut a business down entirely because of unpaid sales taxes. If problems with sales and use tax do occur, however, you can count on a firm like Brotman Law to support you throughout the process.
About the Author
Sam Brotman is an experienced, compassionate tax attorney and the founder of San Diego-based Brotman Law. He strongly supports businesses resolving their tax issues at an early stage, and is qualified to help his clients through every phase of a tax controversy or a high dollar collection process.