advertisement

How to stay compliant with state, local taxes

As a business owner or executive, you want to ensure you are staying compliant with state and local taxes in case of an audit that will cost your company time, resources, and possibly extra penalties and fees. The best way to stay in compliance with state and local taxation is to create business processes that allow your company to keep up with the changes in any state you are doing business. Better yet, solid processes help give company leadership the information they need to make strategic decisions.

In order to stay in compliance with sales and use tax, these are some of the business processes your company should monitor and keep up-to-date as laws change.

1. Purchase orders

It is a good idea to estimate the sales tax on your purchase orders for several reasons, including letting the vendor know you are expecting to be charged. If the sales tax is not included, you are required to take the extra step of reporting consumer use tax to the taxing authorities.

2. Customer information

If you have a database of your customers, you should consistently update their information to ensure the proper sales tax is being applied so you do not overcharge them. Although this process plays more to customer satisfaction, it can also give you information on your customers and their locations, which can help estimate the amount of sales tax you are expected to collect. Plus, if you have nexus in another state, you need to collect sales tax from customers in that state.

Tip: Keep customer exemption certificates on file and current to help withstand an audit.

3. Inventory

Check that you have your resale exemption certificates in order when you purchase your inventory. When you do resell the item, be sure to include any final tax calculations. Don't forget to track items you donate, use internally, or use as a sample, since use tax is usually applied to these areas as well.

4. Sales

With thousands of taxing jurisdictions and millions of rules on taxation, charging the proper taxes can be difficult. Illinois updates their state and local taxes every 6 months and other states will update throughout the year, so you will need to check all of your systems and make the updates.

Several states have recently adopted the Market-Based Sourcing Method. This method assigns revenue and income to the state where benefits were ultimately received. In many cases, the benefit-received state will be the state where the customer is located.

Tip: It's a good idea to watch where your sales are occurring in order to track nexus. If you sell tangible personal property, do you have sales representatives in other states or deliver via a company truck? If so, you may need to check your sales tax nexus. In some states, services are taxable, so be aware of where you conduct business.

• If you are looking for professionals to help manage your state and local tax obligations and strategies, contact DHJJ's State and Local Tax group (SALT) at (630) 420-1360, or email Meaghan Wingbermuehle at mwingbermuehle@dhjj.com.

Business owners and executives are invited to attend DHJJ's presentation on State and Local Tax Solutions for Businesses on June 15 in Naperville. For information or to register, please visit dhjj.com or email sgandsey@dhjj.com.

Article Comments
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the "flag" link in the lower-right corner of the comment box. To find our more, read our FAQ.