Sales tax compliance can be tricky. There's a lot to learn, a lot of deadlines to be aware of, and a lot of ways you can unintentionally capture the unwanted attention of your state auditor. To help you avoid an audit, we compiled a list of five sales tax compliance mistakes you should avoid.
Thinking Compliance is One-Size-Fits-All
Sales tax compliance, in and of itself, is complex. But what makes it even more complicated is the fact that every state has its own set of nexus rules and regulations.
To keep it all straight, we recommend you write down applicable nexus laws for each state as you apply for your sales permits. Be sure to outline any unique rules that apply to your business, regulations you need to be aware of, state tax rates, and details on which of your products and services are taxable. Being able to see what your tax responsibilities are at-a-glance will make it easier to stay fully compliant.
Not Filing Because You Didn't Sell
What happens if you have nexus in Arizona, but you didn't sell anything in that state this year. You don't have to file state taxes, right? Wrong.
It's an easy mistake to make, and many new small business owners fall victim to this assumption. But in most states, you still have to file taxes on the regular filing schedule, even when you haven't sold anything since the last time you filed. By requiring businesses to file regardless of sales volume, states can keep track of which companies are still in business.
Missing a Filing Deadline
Running a small business goes well beyond the scope of a full-time job. With so much going on, you're going to miss things sometimes. The problem is, if you miss a filing deadline, you're going to have to pay the state for your mistake. But there's an easy way to avoid this faux pas.
Take advantage of all the technology in your life! Set calendar reminders and alarms that go off a week before your filing deadline. Then, set secondary alarms that go off a day before your taxes are due, and one more that goes off on your actual deadline. By setting multiple reminders, your odds of missing an important date (and getting the attention of your friendly state auditor) decrease tremendously.
Waiting Too Long to Pay a Penalty
If you make one of the mistakes outlined in points two or three above, you may owe the state money. Happy to collect, they'll send you a notice that includes a payment deadline.
If this happens, make every effort to pay your penalty as quickly as possible. Doing so will help you avoid additional fees and will keep you in good standing with the state.
Managing Compliance Yourself
Many small business owners take it upon themselves to manage every aspect of their company. That includes operations, marketing, sales, logistics, accounting, HR, tax compliance... the list goes on and on. And it's a lot of work! But there's one thing you don't have to do.
If you would prefer to focus on your strengths and outsource sales tax compliance, consider hiring LumaTax. Our team of experts, headed by a former Senior Tax Auditor for the State of California, will take filing deadlines and complicated nexus laws off your plate. Our goal is to give you the time you need to focus on what really matters - growing your business.
Sales tax compliance isn't fun, but it is necessary. Use the tips outlined above to avoid common mistakes, simplify sales tax, and reduce your audit risk.
Learn More About LumaTax