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Is 2021 the Right Time for Do-It-Yourself Sales Tax Compliance?

https://www.cherrybekaertsalestax.com/general-sales-and-use-tax-consulting(Updated in March 2021)

Three years after the Supreme Court of the United States (“SCOTUS”) issued their decision in the case of South Dakota v. Wayfair, Inc. (“Wayfair”), economic nexus is being aggressively enforced by most states and manufacturers are paying the price in time, money and resources.

Remember back in 2018 when the Wayfair decision sent a wave of panic through many manufacturers, as the physical presence standard was the only nexus standard set forth when Quill Corp. v. North Dakota (“Quill”) was overturned? 

Previously, manufacturers had relied upon Quill as the basis for not collecting sales tax on sales made into states where they had no physical presence. Although states had been trying to chip away at the physical presence standard for years, Wayfair opened the door for many states to begin enforcing economic nexus laws for taxable sales of products and services. Fast forward to 2021 and the hinges are off the doors as most states continue to look for ways to collect sales or use tax from out-of-state taxpayers.

One result is that most manufacturers are now required to file more sales tax returns to a broader range of jurisdictions.  If your company falls into this category, as yourself these two questions: 

1) What does this mean for my company? 

2) What do we need to do next?

With nearly 11,000 separate taxing jurisdictions across the U.S. there are now many challenges that manufacturers face (where to register, taxability of goods) but one of the biggest and most important questions is who and how will a manufacturer file all the additional returns. 

How To Handle Compliance Requirements
Monthly sales tax compliance requires time and resources – two things that are often in short supply for most companies. As the sales tax landscape becomes more complex, companies need to be asking,  should compliance be done in-house or does it make sense to look outside the company for resources that can assist with this function?
 

Who will handle this extra workload? Is your tax/accounting department already overworked and understaffed? Do you have resources to dedicate to this task or will you need to hire additional employees? Is filing monthly returns a value-added proposition or does outsourcing make more sense? All of these questions need to be considered when deciding whether to take on the task internally or look outside the company for help in managing this function.

The Risks of Mismanagement
Managing compliance correctly is crucial. Missing filing deadlines can be costly in terms of penalties and interest, plus the loss of any timely filing discounts offered by a state. Who is going to track this? Do you already have a system in place to ensure timely filings? Will it be sufficient to handle the additional returns you are almost certain to be responsible for filing in the wake of the Wayfair decision?
 

Unfortunately, filing returns is not as simple as entering numbers into a tax return. One especially large challenge is pulling out the data from the company accounting system. The correct data needs to be pulled and reconciled, ensuring that all sales and all tax collected is accounted for. Then, in many states, data needs to be manipulated down to the local tax level. Slicing and dicing the data is often required in order to get the data in such a way that it is usable for filing returns. 

Without the expertise and experience in sales tax compliance, errors can be costly in more ways than just penalties. Another large component of compliance is handling notices by the Department of Revenue. Any missed deadline or calculation error can trigger red flags within the Department of Revenue. Then notices start coming in the mail. It  takes time (hold times can be over 30 minutes or more) to respond and fix any problems. 

Options to Meet Compliance Requirements
For many manufacturers, the burden of monthly compliance overwhelms already overworked accounting departments. Can your company afford the investment to hire the additional staff necessary to ensure proper compliance or is your money better spent hiring an outside service to handle the increased compliance so your tax and accounting department can focus on more value-added activities? All of these questions should be evaluated during the decision making process because the wrong decisions can be costly.
 

At Cherry Bekaert, we have the compliance outsourcing expertise to assist any size manufacturers with their outsourcing needs. Our outsourcing services ensure our clients will have one less thing to worry about each month. Quoting a current client:

“Cherry Bekaert has been providing sales and use tax compliance services for [Our Company] for more than 5 years. In that span, we have expanded our market presence throughout the United States. Cherry Bekaert has assisted us every step of the way from registering in new jurisdictions to filing additional returns. Their processes allow [Our Company] to accurately track payments made to jurisdictions, as well as credits, discounts and other adjustments to the monthly tax due. Additionally, they handle all notices related to the filings they are responsible for, which relieves us of the burden of trying to contact the various jurisdictions ourselves. The service level has been exceptional and we are happy to recommend their services to any company who is considering outsourcing their sales and use tax compliance function.” Johnny A., Financial Controller, Global Retailer

Click here for more information on Cherry Bekaert’s outsourcing services. Visit our website for links to blogs and other resources on this topic.

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Terrisha Pulte, CMI
Written by Terrisha Pulte, CMI
Terri is a Manager on Cherry Bekaert’s State and Local Tax (SALT) team. She leads the firm's sales tax outsourcing practice. Terri has spent more than ten years managing sales tax compliance services for companies in a variety of industries. She also has experience with audit defense, reverse audits and refund reviews. Terri is certified in sales and use tax by the Institute for Professionals in Taxation.

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