Keeping up with sales and use taxes requires a level of sales tax expertise that most companies don’t have.
Forty-seven states that collect sales tax.
Then there are the municipalities.
To that add the endless exceptions that are in constant flux.
Properly managing this sales tax morass requires a broad and continuously evolving understanding of the regulations combined with the ability to implement.
First, get to know the code.
In Pennsylvania, there’s a book that contains the sales tax codes. It is about an inch and a half thick. It is even less exciting to read than you might imagine.
Each state and many municipalities have the same thing, which equates to a very long list of very dry regulations to read, understand and be able to implement.
Second, study the case law.
But understanding the law and codes is often not enough. Tax laws are notoriously not fully inclusive, creating gray areas where tax questions are open to interpretation, and legal decisions must be interpreted or argued.
So, you will need to understand both the tax codes and the legal decisions that interpret the tax codes.
Third, develop the systems to manage the payment process
The next step is to apply these to your payment processes. The application of tax rules often falls to Accounts Payable, but without the specialized knowledge of the codes and legal decisions, they are fighting a losing battle.
Accounts Payable will need a standardized process and relevant software to manage each purchase, assess the tax implications and pay the necessary tax.
Fourth, implement an internal audit process
You will also want to continuously review past payments because as laws change, there are opportunities to recover additional taxes.
How to manage sales tax and use tax
The only sure way to manage sales and use tax consistently over time is to have a dedicated staff that understands the regulations, keep up with the changes and, importantly, stay on top of all of the relevant transactions.
In a company with billions of dollars of transactions, this means a team of people focused exclusively on understanding sales and use tax.
The challenge for smaller companies is that the complexity still exists, so they need the same team. But they don’t have the transactions to make this financially viable.
There isn’t enough money on a continuous basis to justify hiring a full staff.
Ultimately this means that sales and use taxes are managed using general rules and using best effort. The standard approach makes sense and is the right way to go, but it also means that companies end up leaving a lot of money with the states that they could recover for themselves.
The good news is that you can recover the money without cost.
All states have a process that allows you to file for sales tax refunds. Generally, you have three years in which to file for a refund.
So, the best process for most businesses is to bring in an expert who can work on a commission fee basis. Let them sort this out and file for a refund.
You should use this process to update your rules and adjust how you pay the taxes and apply for exemptions to minimize the overpayment going forward.
The world will shift between now and three years from now. Therefore bring in the experts again in three years. They find money for you again retune your systems, and you are ready for three more years.
This gives you most of the benefit of a team for a fraction of the cost. And you don’t have to worry about getting every transaction right.
At FMCC we are experts at getting your money back. Find money you didn’t know is yours – let’s start now.