We have stepped into the digital world not for very long. Inevitably, the companies are finding new prospects and new problems. While there can be numerous challenges that any business might face, one of the most challenging issues that confront many online retailers, eCommerce platforms, and traditional ‘physical’ sellers is the upcoming challenge of sales tax compliance. An accountant for self employed plays a vital role here. Staying informed of quickly changing tax laws and regulations is quite a daunting task, but one that has to be met for business success and non-incurrence of penalties.
Thus, why is sales tax compliance so complex, and how do organizations manage the difficulties? Now that we’ve seen what makes sales tax challenging let’s discuss those challenges in more detail and discuss some key ways you can deal with them in digital selling.
Table of Contents
Understanding Sales Tax Compliance
Sales tax is an indirect tax levied and collected by governments on products and services sold. However, this could not be further from the truth, as how sales tax is determined, derived, and paid depends on the place. Therefore, corporations’ primary concern has been sales tax, which has been restricted to local or state boundaries. However, the game has almost entirely shifted after the advent of eCommerce.
Nowadays, virtually any enterprise involved in the sale of goods or services remotely, especially through the Internet, is subjected to selling tax or use tax collection and remittance not only in the company’s home state but in any state in which a company has a nexus, or legal presence, that requires the company to obey that state’s selling or use tax laws. It gets tricky to decide whether or not there is a tax nexus with different states’ standards.
The Challenges of Compliance
Use Automated Sales Tax Software
Sales taxes are uniform, but there are rules and regulations concerning them in every state and even individual city and county. Hence, businesses must update themselves with the rules in all the states where they have customers. It may take time and can be confusing if it is done by small businesses that may not have a tax department.
Calculating the Correct Tax
Sales tax varies depending on the state, city, and county, so calculating it requires knowledge of the rates in every area where the business transacts. Any mistimed calculation leads to ineffective tax collection, which, in turn, attracts penalties rather than customer dissatisfaction.
Filing and Remitting Taxes
After collecting the sales tax, the responsibility is to file tax returns and pay the amount to the right state or local tax authority. Every state in the United States of America has its timetable for filing returns, forms, and procedures. Thus, companies may file several returns in quite different states monthly or quarterly.
Managing Exemptions and Certificates
Some exceptional cases of businesses, customers, or products are exempt from sales tax. However, processing these exemptions requires keeping records and gathering the exemption certificates. When people do not follow through with documentation requirements, they face audits or penalties.
Conclusion
It is correct to say that one could never have thought that compliance with sales tax could be this complicated, especially in the digital age. It is an especially important element during globalization, and as companies commence operating in different countries, different laws and taxation standards must be considered.
Nevertheless, if businesses opt to automate the process, inform themselves, and maintain up-to-date records, they can manage the sales tax effectively. New issues may arise because of eCommerce and digital goods, but if concrete plans are adopted, companies can remain legal-compliant and grow in today’s uncertain digital world.