Avoiding the Biggest Sales Tax Risks for Manufacturers
Where should a manufacturer start looking for sales and use tax mistakes that are wasting money and increasing risks for your next audit? Here are four areas where these errors like to hide -- Sales Tax Collection, Purchasing, Audits and Technology and Outsourcing.
Sales Tax Collection
The three keys to managing your sales tax collection efficiently are nexus compliance, taxability accuracy and exemption certificate management.
1) Be sure you understand the new economic nexus standards, and know where you have nexus, then register properly.
2) Stay up to date on which products are taxable versus not taxable.
3) Have a process to manage exemption certificates, including how to collect, store, and validate them when received from customers.
Managing sales and use taxes on the purchasing side of the business should focus on four key areas:
1) Have a process in place to manage sales tax exemptions. For most companies, exemptions are complicated and many money-saving opportunities are missed by overlooking new or changing tax laws.
2) Have a process in place for accruing use tax. More than one person should be trained to decide if a purchase needs to have use tax paid. Specific directions for remitting use tax when due need to be followed to avoid issues during an audit.
3) Stay on top of tax laws that affect your business and train staff about new and changing regulations.
4) If your company uses P-cards, be sure to have a process in place to pay use tax when due on transactions using P-cards.
Most manufacturers have been and will continue to be audited. While there’s no easy audit, you can take steps, both before and during an audit, to make the process less painful.
1) Put together an internal team to review your policies and procedures.
2) Hire sales tax experts to conduct an annual review of your processes.
3) Be proactively involved in the audit planning process.
4) Don’t be afraid to disagree with the state’s audit findings and speak to a supervisor about your concerns. Remember, they have the power to negotiate.
Technology and Outsourcing
Sales and use tax has gone high tech, but travel down the tax automation road cautiously. Make sure the technology compliments your company’s needs. Remember that technology is only as good as the internal resources that manage it.
Sometimes the best decision is to hire sales and use tax specialists to get you on track and help manage your internal processes. Sales and use tax firms offer a variety of services to help correct problems and train personnel to manage procedures. Know which questions to ask and how to identify the right consultant for your unique needs.
If you are interested in learning more improving your company’s sales tax procedures, download this on-demand webinar: