Saying the US sales tax system is complicated would be the biggest understatement since Jim Lovell uttered the immortal words “Houston, we have a problem”.
You’ve got complex and varied tax jurisdictions where 45 different states (plus the District of Columbia) all have their own sales tax rates and rules. This includes local jurisdictions often adding their own tax on top of the state rate, which means combined state and local tax can vary wildly depending on where your client is.
You’ve also got different states and localities with their own lists of what goods and services they consider taxable. There are some common exemptions like groceries and medicine, but things like digital goods and resale vs end-use are all treated differently depending on the state.
Then you’ve got different types of nexus to worry about, including physical nexus, economic nexus, affiliate nexus, and more. All of which you then have to cross-reference with everything else I just mentioned.
These complexities make it impossible for a piece of software to accurately calculate sales tax for a company, and extremely overwhelming for a CPA or bookkeeper who already has enough on their plate.
Which is a problem, because getting it wrong can be catastrophic…
Need help managing sales tax for your clients? Apply to become a partner with TaxValet and see how we can support CPAs like you. Learn more.
Calculating your sales tax incorrectly isn’t just a case of your clients charging their customers the wrong amount. It can have huge ramifications for both you and your client.
Financial penalties and interest: The most obvious risk to you and your client is financial penalties on any unpaid sales tax. These penalties can range from 5% to 50% of the unpaid tax, depending on where you are and the nature of the non-payment. Some states even impose minimum penalties per violation, regardless of the amount owed. Your client will also be charged interest on the amount owed, and this amount often exceeds the market rate. So you could be charged interest as high as 18% if you’re in the wrong state.
Audit risks: States are finding more and more ways to identify potential non-compliance, including using data analytics to identify inconsistent tax patterns. If this results in you being audited, it could cost you tens of thousands of dollars in professional fees and lost productivity, and that’s if no issues are found. Depending on a state's lookback period, this audit can cover from 3 to 7 years previous of your sales tax records. And if the sales tax isn’t being properly calculated now, the chances are they weren’t in previous years either.
Legal consequences: States are well within their right to issue civil and, in some cases, personal liability lawsuits in order to recover unpaid taxes. Regulatory bodies are also able to review your business licenses off the pack of non-conformance. And in extreme cases, business owners or executives can face criminal charges if they’re found to have been deliberately evading tax or committing fraud. The punishment for which can include fines or in rare cases, even prison.
Reputational damage: It’s easy to focus on things like financial penalties, audits, and legal risks. But the hit it could have to yours and your clients reputation can be huge. A lot of customer relationships are based on trust. So if your client becomes known for not paying and charging the right tax, customers are likely to look elsewhere. This is even more important to you asd their CPA or bookkeeper. Your reputation is dependent on helping your clients manage their finances accurately and responsibly. If one of your clients ends up in big trouble, chances are folks are going to stop answering your phone calls.
Operational disruption: Another huge cost no-one thinks about is the disruption it’ll have on your clients business. Just an audit can have a huge impact on resource allocation, as members of their team have to take time out to support the audit. This will get even worse if the audit identifies a problem or non-conformance. In severe cases, tax authorities can even suspend their business license while things are being investigated and resolved. Which will stop you from being able to legally sell products in the state anymore. If the business license is pulled, you can't sell to customers which will have disastrous financial consequences.
The good news is that you don’t need to take on these risks by tackling your clients sales tax on your own. By partnering with TaxValet, you bring sales tax experts into your processes to help you protect your clients.
We’ll support you and your client across the whole spectrum of sales tax management:
TaxValet will conduct thorough nexus reviews to pinpoint any tax obligations across all the states your client qualifies. This includes analyzing business activities to identify potential nexus triggers, and keeping track of changing nexus laws and thresholds. We also provide ongoing monitoring to alert when a new nexus is established.
With TaxValet you get full sales tax audit protection. This is where we manage the entire audit process, proactively minimize audit risk through compliance strategies. We’ll also cover all costs if an audit results from their error.
Working with you, we’ll tailor compliance strategies to optimize your clients tax positions. This includes ongoing guidance on complex sales tax issues, and help creating plans to resolve historical tax liabilities. We also provide strategic advice on business decisions that impact sales tax.
We don’t believe in doing the work then walking away. So we will provide your team with free sales tax training so moving forward you and your clients can be confident of no future slip-ups. They will learn the basics of sales tax management, including how to better identify and mitigate risks.
By becoming a TaxValet partner, it also allows you to expand your own offering as a CPA or bookkeeper. That’s because you can promote and market sales tax management as a service you provide, without having to worry about doing the tricky bits yourself. We do all the heavy lifting of sales tax compliance, and you can focus on doing what you do best.
This not only helps you market your services, but it also means you can deliver a seamless client experience. A unified front where we act as an extension of your team. This will improve your standing with existing clients, and improve your reputation with potential new clients.
As a partner, there are also things we can do to help you to promote your services and grow your business. We’ll feature you on our TaxValet blog, our partner page, our newsletter, and anywhere else we can shoehorn your name into conversation. We do this because the more work our partners get, the more companies we can help. It’s a mutually beneficial arrangement.
Just in case you’re not already sold on becoming a TaxValety partner, we’ve got one more sweetener to seal the deal. For the first 18 months of our partnership, you’ll earn a share of each referral’s revenue. So you get to provide a better service AND get a cash bonus. Or if you don’t want/need the referral bonus, you can also opt to pass the savings to your clients, or we can even donate it to charity for you.
Ready to join our partner program and start giving your clients sales tax management they can trust? Schedule your Partner Introduction call right away!