Sales Tax Issues to Avoid

Sales Tax can be complicated, unglamorous, and confusing. With so many differing regulations, business owners can spend hours determining their sales tax returns. But that’s not why you entered the world of entrepreneurship. You began your own business to be creative and to be a visionary in your industry, not to determine if you have a sales tax nexus in a neighboring state.

Business by the Book is here to help. We assist our clients with their sales tax filing and will guide you through your different state regulations, preventing issues and hassles. As you grow your business, here are a few general items to remember about sales tax:

• A Pass Through. Essentially, you are the collecting agency for the state. You collect sales tax from your clients and then hold the funds until it is time to remit the receivable to your state. You are simply a pass through entity. 

• Services Taxable in Some States. Every state has different regulations. For example, interior design services are not taxable in Georgia, but those providing the same level of services in New York, must collect sales tax on design fees. Do you know what is taxable in your state?

• Filing Frequency. Every state has different filing periods. When you register for your Resale Certificate and/or Sales Tax permit, the state will assign you to file on a monthly, quarterly, or annual basis, depending on your annual revenue. For example, business owners in the state of Georgia must remit sales tax by the 20th of the month for the previous period. Georgia sales tax collected from September 1 - September 30 would be remitted by October 20th. Do you know when your state filing period is?

• Zero Returns. In most states, once you start filing sales tax you must continue to file a return on time, even if the return amount is zero.

• Rates Vary by City, County, and State. It’s vital to collect the correct amount of sales tax from your clients. This might be the most critical part of collecting sales tax. For most states, you’ll need to file sales tax in multiple jurisdictions. Let’s take the example below:

KC Interior Design is based in Marietta, Georgia and she rarely does any client work outside the Cobb County area. The sales tax rate in Cobb County is 6% and she is comfortable with the sales tax rate and selects the correct county code on all current client invoices.

However, the firm just landed a large client in Atlanta which is located in Fulton County. The Fulton County-Atlanta Sales Tax rate is 8.9%. When the firm enters the new client’s  information, they enter the correct address and create a new county sales tax agency. However, they do not take the time to research the Fulton County-Atlanta sales tax rate, and instead use the known 6% rate.

When it comes to remit the sales tax for the new Atlanta client, the sales tax software will report that KC Interior Design did not collect enough sales tax and she’ll need to pay the difference.

Let’s say the Atlanta client had a product invoice of $25,000 and KC Interior Design collected the incorrect 6% sales tax totaling $1,500. When she files her sales tax return with the state of Georgia, the agency will determine that she should have collected $2,225 (a difference of $725). Yikes.

8.9% Tax Owed  $2,225.00

6% Collected      $1,500.00

Difference Owed  $725.00 

As a business owner, you’ll have to determine if you want to return to your client and explain the error or if you’ll pay the difference. It’s a position we never want our clients to be in, so we do our best to catch these oversights before an issue arises.

• Other important notes on Sales Tax:

  • Determine if you have Sales Tax Nexus within a state. For more information on this topic, check out this article.

  • Most states provide a discount for filing early. At Business by the Book, we strive to file our client’s sales tax returns by the 16th of the month to ensure the discounts are received.

  • Do you sell online? More state guidelines coming out of South Dakota vs Wayfair could affect you. Here is a great resource..

Remitting the correct amount of sales tax on time and in the proper jurisdiction is not what you dream about as a successful entrepreneur. Your company’s vision boards do not include articles on local tax laws and filing date calendars, but ours does! Our Business by the Book team can streamline the sales tax process for your business and help you save time and money! Click here to contact our team to learn more about adding Sales Tax filing to your monthly package or to set up a new client call. We are here to help.