State and local tax (SALT) laws continue to be a challenge for businesses to proactively navigate. With almost every state and local jurisdiction having their own tax regulations to adhere to, and those regulations continually evolving, it’s never been more difficult for a business owner to remain compliant.
To ensure your business is compliant and confident in its sales tax filing processes, it’s crucial to stay up to date on what’s going on in the state and local tax landscape. Here are a few considerations and steps to take that can help your business confirm sales tax compliance and be more proactive about future tax filings.
Did you make any sales in new states?
It’s important to confirm whether you crossed a state’s economic threshold and have filled out the correct paperwork for that state. What constitutes a state’s economic threshold varies, and some states don’t have one. States also vary in how they define a sale, whether that’s physically in store or through online sales. Most U.S. states require a business to collect and remit sales tax even if it has only an economic (and no physical) presence.
With so much variability on tax guidelines, having a clear picture of your filing to-dos is difficult. If you operate in a multi-state environment, it’s recommended to partner with an advisor on your taxes so that you don’t miss anything and can focus on running your business instead of combing through tax protocols.
Has taxability changed for sales made in states your business is already registered in?
This consideration is key to understanding what types of returns you should be filing. States vary in their frequency for filing sales tax returns, whether it be monthly, quarterly, annually or even a combination of the three. It’s important to confirm whether filing frequency remains the same in the states your business has sales in— as well as whether any other changes have been made.
From an income tax perspective, it’s no longer safe to assume you only need to file in the state in which your business resides. States are beginning to poke holes into public laws designed to protect businesses from income tax, specifically Public Law (P.L.) 86-272, which limits states from imposing income tax on interstate commerce. Some states, like California, are modifying how they interpret P.L. 86-272 and are requiring businesses to file income tax in their state based on a broader definition of economic nexus that includes internet sales. These looser interpretations of public law are becoming more common among states, which is why it’s crucial to routinely stay current on sales tax updates to avoid penalties.
Steps to achieve sales tax compliance
With everchanging tax laws and countless jurisdictions to account for, how are businesses expected to handle it all? Remaining sales tax compliant is a complex endeavor, but it’s possible with the right strategy and action plan. Taking the following steps when tax planning can help your business gain clarity on sales tax filing:
- Determine your business’s nexus and filing obligations
- Evaluate the taxability of your products and services
- Estimate the amount of your potential tax exposure
- Mitigate and disclose historical tax liabilities
- Consider implementing a sales tax system or software to assist with tax calculations
- Stay compliant by repeating the steps above when tax planning and regularly monitoring sales tax laws
To many businesses’ dismay, staying on top of the changing SALT landscape isn’t going to get easier anytime soon. Managing your business’s tax obligations will continue taking much time and diligence to do properly, which is why it’s recommended to partner with a tax advisor who can do the heavy lifting.
At Creative Planning Business Services, we have the expertise and resources to help add clarity and confidence to your tax planning procedures. Our tax advisors stay current on changing tax laws and provide guidance on next steps so that you can rest assured your business remains compliant. Schedule a meeting with our team today to learn more about our SALT services.