How to Avoid or Survive A Sales Tax Audit

How to Avoid or Survive A Sales Tax Audit

Many small and mid-size businesses hire accountants and bookkeepers with the expectation they’ll help prevent an audit. Unfortunately, it can’t be guaranteed you won’t be audited for sales and use tax. States need sales and use tax revenue to fund essential services, and tax authorities are tasked with ensuring businesses collect and remit the taxes they owe. What you can do is institute best practices, avoid common audit triggers, and position yourself to sail through an audit as painlessly as possible. Who Gets Audited Although any business can be audited at any time, certain industries are more vulnerable to audits than others because of how sales and use tax regulations impact their business. In fact, more than half of all audits in the United States target just a handful of industries: construction, food service, manufacturing, retail, and wholesale/distribution. In addition, auditors often focus efforts on businesses with a high volume of exempt transactions. Specific events, such as late filing or a dramatic change in taxable or exempt sales year-over-year can also draw an auditor’s eye. Perhaps most surprisingly, many audits are aimed at out-of-state companies with ties to the state. The more you institute best practices, the less likely you’ll raise the red flags auditors seek. Top Errors Audits Uncover There’s no one reason businesses are found liable. However, different businesses are prone to different errors, and auditors tend to scrutinize these areas. For example, retailers that sell to consumers in multiple states may not collect and remit tax wherever they have nexus (an obligation to collect). Companies that sell to non-profit entities may not properly charge those entities...
New Sales Tax Amnesty Program for Online Sellers

New Sales Tax Amnesty Program for Online Sellers

Just ahead of the busy holiday shopping season, states are incentivizing online marketplace sellers to register for tax collection and remittance within their jurisdictions. As ecommerce has risen in recent years, state and local governments are cracking down on online sellers operating within their boundaries. A new sales tax amnesty program, running from August 17 to October 17, will offer online businesses leveraging warehouses, such as Amazon’s Fulfillment centers, the opportunity to register for the amnesty without penalty of back taxes. The Multistate Tax Commission (MTC) will administer the amnesty program, with fifteen MTC member states – Alabama, Arizona, Colorado, Connecticut, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, Texas, Utah and Vermont – agreeing to participate, with more states likely joining in the coming weeks. What are the Incentives to Participate? Simplified compliance. Online marketplace sellers may not have a storefront in a specific state. However, by using a storage warehouse located within a state, leveraging a fulfillment agent or having inventory in a fulfillment center, sellers most likely have a tax obligation, or nexus, to that state. With this proliferation of fulfillment centers has come uncertainty and confusion on the part of online sellers related to where products are shipping from, and whether or to whom sales tax should be collected and remitted. An unregistered online seller with nexus in a particular state will be asked on the tax registration forms when their business began in that jurisdiction. Registering under the MTC Sales Tax Amnesty program simplifies compliance because accurate information can be shared without financial risk. Forgiveness of back taxes. Under the new amnesty program, participating online sellers will likely...
Los Angeles Sales Tax to Increase Again!

Los Angeles Sales Tax to Increase Again!

The Los Angeles Sales Tax rate is set to increase again on October 1. If you operate a business located in the county, or ship/deliver items to customers located in the area, make sure to update your rates in your POS and/or accounting system prior to start of business October 1. Tax rates increased in July 2017, so you may be surprised there is another increase so soon. But because voters approved Measure H in March of this year, another 1/4% increase will take effect. Los Angeles County will be 9.5%, but there are many locations with higher rates due to voter approval on the local level. The rates will be: City of Avalon                        10% City of Commerce                 10% City of Compton                    10.25% City of Culver City                 10% City of Downey                      10% City of El Monte                    10% City of Inglewood                 10% City of La Mirada                 10.25% City of Long Beach              10.25% City of Lynwood                   10.25% City of Pico Rivera               10.25% City of San Fernando          10% City of Santa Monica      ...
What Reintroduction of Internet Sales Tax Means for Online Sellers (cont.)

What Reintroduction of Internet Sales Tax Means for Online Sellers (cont.)

In our last blog post, we featured an article discussing the Marketplace Fairness Act (MFA) and how it negatively affects small business owners. You can read that post here: (http://bit.ly/2rI3BFq). This post will focus on the second internet sales tax bill being introduced, the Remote Transaction Parity Act (RTPA) and the unfair burden it will have on online sellers. Recap of the Remote Transaction Parity Act Similar to the Marketplace Fairness Act, the Remote Transaction Parity Act would not affect existing nexus, but would require retailers to collect sales tax in remote states, as well as in states where they have nexus. The RTPA works on a tiered system, with online sellers making $10 million in sales or more subjected to the law in the first year, online sellers making $5 million in sales or more subjected to the law in the second year, and online sellers making more than $1 million in sales subjected to the law in the first year. EXCEPT online sellers who utilize “an electronic marketplace for the purpose of making products or services available for sale to the public.” These sellers – a grandmother who sells on eBay after retirement or a college student dipping her toe in the water to sell on Etsy – would be required to collect sales tax in every state, no matter if they make $10mm in sales in a year or $10,000. Sellers on online marketplaces – which are right now the training ground for online sellers getting their eCommerce start – would be subject to the administrative burden of collecting sales tax from buyers in every state...
What Reintroduction of Internet Sales Tax Means for Online Sellers

What Reintroduction of Internet Sales Tax Means for Online Sellers

For many small businesses that sell online, the reintroduction of the two sales tax bills will affect them greatly. In a post written by Mark Faggiano, the founder of TaxJar summarizes how these two bills reintroduce internet sales tax in way that may make filing tax returns much more difficult. Today’s post will share information on the Marketplace Fairness Act and our next post will explain the Remote Transaction Parity Act. Earlier in the year Congress promised to tackle tax reform in the spring, and that resulted in the reintroduction of two internet sales tax bills: the Marketplace Fairness Act (MFA) and the Remote Transaction Parity Act (RTPA). We’ve written extensively about both of these bills in the past. In short, both of these are bills with bipartisan support, but very tilted toward the welfare of states and brick and mortar stores with no online presence. Unfortunately, and probably unknowingly, both bills will place a hugely unfair burden on online sellers if passed. Recap of the Marketplace Fairness Act If this act passes, online sellers who make more than $1 million in remote (non-home state) sales per year would be required to collect sales tax not only in the states where they already have sales tax nexus, but in any states where they don’t have a nexus at all. The $1mm is remote “sales,” and not profit. As it currently stands, the precedent set in the Quill v. North Dakota case of 1992 protects retailers from being required to collect sales tax in states where they do not have a significant presence. This law would strip that protection away...
LA County Sales Tax Increase July 2017

LA County Sales Tax Increase July 2017

As you may be aware, there is an increase in the LA County sales tax rates taking effect July 1, 2017. In November 2016, voters approved Measure M which applies to Los Angeles County including all cities and unincorporated areas. It is imperative that you know which tax rate applies if you sell to those outside of your business location. At this time, the BOE is not increasing the sales tax for the passage of Measure H (Sales tax for Homeless Services and Prevention) which was approved in March 2017. Increases usually don’t take effect less than 6 months after the vote is approved, so it could potentially be implemented as early as the 4th quarter of 2017. We’ll have to watch for information to know when this increase will take effect. Unless a city has passed addition legislation for a higher tax rate, the new percentage will be 9.25%, up from 8.75%. The following cities will have a higher rate:   Avalon 9.75% City of Commerce 9.75% Compton 10.25% Culver City 9.75% Downey 9.75% El Monte 9.75% Inglewood 9.75% La Mirada 10.25% Long Beach 10.25% Lynwood 10.25% Pico Rivera 10.25% San Fernando 9.75% Santa Monica 10.25% South El Monte 9.75% South Gate 10.25% As a retailer, if you charge the incorrect tax rate, you are responsible for paying the difference. The proper rate will be calculated on the sales tax return when the information is filed. The tax rate is determined where the customer receives the merchandise, not where your business is located. A sale is considered to have occurred when the client receives the merchandise unless the contract...

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