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10 Crucial Sales Tax Tips for Small Businesses


Sales tax is compulsory for most businesses. Unfortunately, the complexity of sales tax makes it hard for some business owners to comply. Failure to follow the correct procedures when dealing with sales tax can put your business and your business assets at risk. However, there are ways to overcome these issues and safeguard your assets. Follow these simple but crucial tax tips to keep your business clear of sales tax pitfalls.

Understand Nexus (Tax Nexus)

A nexus is a connection. A nexus in tax law applies to a business that has a physical location within a state. A certain degree of business activity must go on before a nexus is determined for sales tax. Not all businesses are liable for sales tax under a nexus. However, if your business falls under one of these categories you may be liable:

  • Resident employees are working within the state where your business is located.
  • Your business' physical location is within the state.
  • Your business has tangible or intangible property in the state.
  • Your employees solicit your business within the state.

Each state has its particular nexus laws to govern sales taxes. Therefore, it is crucial if you have a nexus to study the tax laws where your business is located. Affiliates are also liable for sales tax under a nexus.

Know Your Payment Options

Each state has specific laws governing the payment of sales taxes by businesses. For example, some states require businesses to pay taxes via electronic means only. Therefore, it's not advisable to assume any preferred payment method. Go through the list of the acceptable payment methods for your business category in your state to avoid problems.

Know Your Payment Schedule

Sales tax payment frequencies may change within a state from time to time. If your business is affected you will normally receive information about it via mail or email. However, this isn't always the case, so it's important to keep an eye out for any changes in your payment frequency.

Update Your Tax Remittance for New Products and Services

The introduction of new products and services usually attracts new sales taxes. Businesses should update their tax remittances according to the tax laws on any new products or services.

Catch Errors with Tax Notices

A tax notice shouldn't be taken lightly. Jurisdictions usually update business owners on vital tax issues via tax notices. Some jurisdictions make serious sales tax errors that can be noted early by keeping up-to-date with these notices.

Sales Tax Exemptions

Customer exemption certificates should be kept up-to-date. Your jurisdiction should be notified in the case of any of these certificates expiring in order to avoid unnecessary tax payments. Your customers should also get new certificates in the event that your business name changes.

Audit Process

Most business owners dread sales tax audits since it may increase the amount they have to pay to the jurisdiction. Instead of dreading the audit process, business owners should intelligently use it as a tool to maintain or reduce sales taxes. To do this, businesses need to have accurate, well-maintained business documents such as ledgers which then should be submitted to the auditor for screening. This helps to avoid erroneous assumptions.

Check for Prepayment Requirements

Most jurisdictions have prepayment requirements for business with reasonably large taxes. Business owners should therefore check the schedules of the tax payments to see whether or not they are required to make prepayments.

Identify Your Jurisdiction

Some business owners use ZIP codes to pinpoint their tax jurisdictions. However, this is not advisable since it may lead to erroneous sales tax payments. The best way to pinpoint your jurisdiction is to use the geographical coordinates of your business transactions.

Check Validation Process

Business owners have to constantly check their sales tax documents to ensure that their tax payment checks cleared the bank. The Department of Revenue always notifies individuals if their payment checks bounce. However, it is best to go the old fashioned way with this one and just check manually to avoid late-payment penalties.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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