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Business Advice: Tips about reporting sales tax

03/15/2015  |  By: Rhonda Chancey, CPA, Senior Manager, State and Local Tax

As featured in the Times Free Press.

Many companies with sales tax collection and reporting responsibilities find themselves with audit assessments, notices, collection agents knocking at the door and other unpleasant surprises when sales tax reporting is not handled accurately and on time. But a few simple efforts now may prevent costly problems in the future.

Always be on time. Failure to file sales taxes by the due date (in many states this is the 20th of the month) will result in notices, and in many states minimum penalties, even if no tax is due. Also, sales tax returns must be filed, even if sales or the sales tax liability is zero. Failure to file returns results in annoying notices, penalties, interest and the possible revocation of the company's sales tax number. In many states, quarterly or annual filing is a potential alternative to monthly filing (generally depending on the size of a company's sales tax liability).

Be complete and accurate. For example, if claiming exempt sales many states require the completion of an "exempt sales" schedule, detailing why the sales were exempt. Electronic forms often will not allow symbols such as dollar signs and periods, so be careful that amounts are correct and follow the correct format.

Collect the tax from your customer. Failing to collect the tax from your customer can be a costly mistake if your company is audited. Don't assume that a customer is exempt. For example, some states do not exempt non-profit organizations or only exempt specific organizations. A few states do not exempt their own state and local government agencies from tax. Therefore, it never pays to assume.

Do keep resale and exemption certificates on file. If a customer claims to be tax exempt, have them provide you with a completely filled out, signed, dated certificate of resale or the appropriate exemption form. Keep these in a file where they are readily accessible if you are audited by a state. Keeping the certificates in the customer credit file can create lost certificates and lost time trying to locate the certificates. A separate file for resale and exemption certificates is better.

End well. If you are closing a company or a location, or perhaps restructuring, don't forget to file a final return and close the old account. This may be as simple as checking a "final return" box on the last return to be filed. The headaches created from failure to properly close an account are not worth it take a few moments to find out the correct procedure.