Tax Tips with
The Sales Tax Sisters
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When working with sales tax, it is common for people to sell items that are not taxable without collecting resale or exemption certificates that support the tax-free nature of the sale. If a taxing authority requires the collection of the documents to prove that your decision not to collect sales or use tax was correct, you MUST have the documents. And there is a difference between resale and exemption certificates.
Sales tax returns and supporting documentation are the key to sales tax compliance. The first time people submit a sales tax return, most people wonder ” did I do it right?” Let’s unpack this question.
One way to identify if you may have a sales tax issue before you are contacted by a taxing authority is to review your records including sales invoices, purchase invoices, certificates, journal entries, etc. periodically. This is a great idea because it will highlight if you have all of the documentation that you will need in case you are audited.
There are basic things you should know about state tax. These questions form a basis cornerstone of understanding state tax compliance. If you don’t know the answers to the questions or understand the questions at all, issues of compliance should be reviewed.
My client, an out-of-state contractor, had questions about California sales tax after being hired to perform a job in the state. The contractor stated emphatically that he wanted to do the right thing for his company and his client. The goals were to do the job, comply with California sales tax laws– state and local, and rest easy knowing that he covered both his bases and those of his client. Here is our story.
Inflated sales figures are a nightmare on a cellular level. Some taxpayers inadvertently inflate reported total and /or taxable sales figures by including sales tax in the amount reported. Sales and use tax collected from customers is NOT your money. The money belongs to the tax authority. The tax collected from third parties should not be included in sales figures reported to state (or federal) tax authorities.
A sales tax audit can be a dream or a nightmare. The deciding factor is the nature of your compliance efforts. Your sales tax liaison will advocate for you. But your daily compliance efforts determine the difficulty of the audit and the audit findings, i.e. whether you get a bill.
It is critical that you pay attention to your sales tax accrual account. This account is a key document that should be used when completing your sales tax return. One of the first things an auditor does when reviewing company records is reconcile your sales tax accrual account with the amounts reported on your sales and use tax returns.
An online business owner shared that she was told that she has nexus and must register her small internet business everywhere she ships product. As she described her business it became clear that she was not required to register outside her home state yet. Here is a crash course explaining why.
A friend asked me for business growth tips. Because I can’t meet everybody…more’s the pity! Here are my top four tips when your business is growing. These observations are in no particular order.
Divergent use occurs when companies issue resale or exemption certificates in lieu of paying tax and make use of the item in a taxable manner. It is most common to see this in the context of items purchased tax-free because the purchaser says they are going to resale or rent the items to third parties.
Don’t forget use tax is a smiling assassin of sales tax compliance. When companies are audited by state taxing authorities for compliance with state and local transaction tax laws, it is common for people to focus on sales tax compliance. There is a gotcha that can be more expensive than sales tax mistakes.
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