Sales tax laws are continuing to change and become more complex because of COVID-19 and a rise in enforcement from tax authorities. Now that tax season is in full swing, there are some important considerations to make in regard to sales tax. To ensure your business is compliant and confident in its tax filing processes, it’s crucial to stay up to date on what’s going on in the state and local tax landscape. We sat down with BerganKDV’s State and Local Tax Director, Chris Gallo, to dive into recent state and sales tax updates and what considerations companies should make as they file their 2021 taxes. Here are the top questions he advises businesses to consider as they file their taxes:
Did you make any new sales in new states?
If so, it’s important to confirm whether you crossed that state’s economic threshold and have filled out the correct paperwork for that state. What constitutes a state’s economic threshold varies and some states don’t have one. States also vary in how they dictate a sale, whether that’s physically in-store or through online sales. Be sure you know the sales tax guidelines in the states in which you conduct business, so you can fill out all necessary paperwork. Guidelines vary from state to state which can make having a clear view of your tax filing to-dos difficult. If you operate in a multi-state environment, it’s recommended to partner with an advisor on your taxes so you don’t miss anything and can focus on running your business.
Has taxability changed for the sales that you are making in the states that your business is already registered in?
This consideration is key to understanding what types of returns you should be filing. States vary in the frequency of filing sales tax returns, whether that is monthly, quarterly, annually, or even a combination of the three. Some states require monthly returns that are wrapped into quarterly returns that also require filing an annual sales tax return. From an income tax perspective, you can no longer assume that you can put all your revenue into the state in which your business resides. It’s important to note that marketplace-based sales are becoming a driving factor for income taxation. States are beginning to poke holes into public law, specifically 86-272, which limits states from requiring businesses from filing income tax returns. States are starting to create rules that require businesses to file income tax in the state based on their economic nexus. This will add even more complexity to the filing process, so be sure you know where your state stands on this matter so that you can remain compliant.
Sales tax planning isn’t going to get any easier anytime soon. Managing your tax planning procedures is a complicated endeavor, but at BerganKDV we have the resources and expertise to assist you. Join our team with an upcoming webinar with our partners at Vertex where we further discuss recent state and local tax news and how you can navigate these changes to stay in compliance. Learn more about our session and register here. I also encourage you to reach out to your trusted advisor to assist with tax planning, especially if you operate in multiple states. Don’t have an advisor and are not sure where to start? We can help.