State and Local Tax Compliance: 5 Tips to Minimize Exposure and Maximize Revenue
With catalogers today marketing their goods through a variety of channels, marketers should carefully evaluate each channel using an internal auditor or an outside tax expert to determine the necessary steps to effectively and fairly calculate and remit sales taxes.
Start by asking a few key questions about yourself and your organization:
* Are you confident your organization is on top of state and local tax requirements?
* Are you concerned about the tax administration and management practices of a company you recently acquired or with which you’ve merged?
State and local tax legislatures change frequently. The revenues from tax dollars, as well as the heavy penalties levied for noncompliance, are depended on to fund important state programs, including transportation infrastructure, education, health care and a host of social services.
As a multichannel marketer, though, your focus should be on accurately calculating taxes, collecting them from your customers and avoiding audits. The trouble is, many multichannel marketers think the taxation process is little more than multiplying a rate by an amount. In reality, calculating tax is a truly complex business process.
Here are five critical tips to ensure your state and local tax processes are compliant:
1. Have someone review your business practices and legal entity structure for tax nexus.
Before they can collect taxes, marketers must determine their nexus — a connection with a state such as business activity or physical presence that subjects you to such tax laws. These rules vary state by state and can include criteria such as having your own delivery fleet to provide goods in a particular jurisdiction.
2. Register your company as a taxpayer in the necessary state and local jurisdictions.
Consider state as well as local, city, county and jurisdiction tax rates to determine the combined sales tax rate of any given address or physical location. The potential combinations of these tax rates exceed 7,000 in the U.S., creating a significant challenge for retailers to keep up with and manage manually.