What Is Sales and Use Tax Compliance?

Sales and use tax compliance entails the accurate recording of financial transactions and the prompt payment of taxes to various state or local jurisdictions. These jurisdictions can include cities, counties, districts, or other administrative areas.

To ensure compliance:

• Conduct thorough assessments to properly collect and submit taxes related to its revenue streams.
• Identify and submit the appropriate forms to each jurisdiction where your company establishes sales tax nexus or maintains a presence.
• Adhere to the specific filing criteria and deadlines established by each of these jurisdictions.

This process can be intricate, notably due to the existence of over 9,000 state and local tax jurisdictions. Additionally, your company must stay informed about evolving nexus laws and requirements, which can strain resources and heighten the risk of non-compliance.

Common Risks Encountered

Below are typical risks related to sales and use tax compliance that your company should carefully consider:

Accurate Liability Assessment:

The most significant risk involves the incorrect collection of sales and use taxes, either overestimating or underestimating, due to a lack of comprehensive insight into your nexus presence and the applicability of taxes to your revenue streams.

Failure to Meet Timelines:

While most returns are typically due on the 20th of each month, filing deadlines can vary, occurring on a quarterly, annual, or semiannual basis. The frequency depends on your company’s liability amounts and the specific requirements of the state or local jurisdiction involved.

Penalties and Interest Charges:

Errors in filing or missing deadlines can result in substantial penalties, sometimes reaching as high as 25% of the tax liability. Additionally, interest charges of up to 15% may be imposed, potentially resulting in your company paying up to 40% of the total tax burden in penalties and interest.

Filing Errors:

The multitude of forms related to state and local jurisdictions can be overwhelming for many companies. Lack of knowledge regarding where, how, and when to file can pose a significant challenge. Variations in filing dates, deadlines, data requirements, and submission procedures among jurisdictions can lead to filing inaccuracies.

Overpayments:

Overpaying sales or use tax can be problematic, as reclaiming these funds typically involves a manual and time-consuming process that can take up to three to four months. This process may demand additional resources from your company and affect cash flow in the interim.

How We Can Help

DSF will provide the following services on a monthly basis:

• Reconcile sales tax accrual account detail to recorded sales transactions.
• Prepare a summary of sales transactions by tax jurisdiction.
• Prepare pro-forma sales and use tax return information for filing purposes.
• Prepare, file and submit electronic payments through tax jurisdictions electronic processing systems.
• Maintain electronic copies of all sales and use tax return support.
• Review, research and respond to notices related to sales and use tax returns filed.