While the beginning of 2021 might not look like any other year, the single best thing you can do to reduce your sales tax exposure remains the same: Keep adequate books and records.
In the world of sales tax, you are guilty until proven innocent which means that sales are usually considered taxable unless you can prove they are not. The way you prove a sale is not subject to sales tax is not by saying your competitors didn’t charge tax, by claiming you just remember what sales took place so someone should just trust what you’re saying or by trying to contact your old customer to agree a sale was not taxable when you’re under audit two years after the sale.
The best way to prove a sale is not subject to sales tax is by keeping the necessary records. These records are a detailed listing of each transaction that includes a description of what is being sold, where it’s being shipped to and separately listing any sales tax collected – “tax included” is not allowed in many states. There are also many other documents that should be kept including but not limited to bank statements, copies of tax returns and any exemption certificates you receive.
Of course those records are only good if you keep them and keep them safely. That means keeping them for at least 4 years (7 years would be even better). That means keeping them safe from floods and other events that tend to ruin pieces of paper. That means keeping a backup of electronic sales records – assuming your electronic system is backed up somewhere should not be your back up policy. It’s also important to note that certain online systems you use do not maintain information as long as you may like so don’t make the assumption your online shipping account will keep records for as long as you need them.
You also need to keep purchase records. These records can show that you either paid sales tax on your purchase or that your purchase was not taxable. Whatever you do, do not assume that if a vendor failed to charge you tax that it’s not your problem. Sales tax’s evil twin, use tax, was put into place to force you to self-assess any tax that should have been paid but was not. Use tax is much less heard of but can be devastating. Can you imagine being a contractor in New York who does capital improvement work but doesn’t pay sales tax or self-assess use tax on materials? Those bills can be enormous, especially when you add the mandatory interest and potential penalties.
Failing to keep records can be the difference between not owing any tax on an audit and owing tax based on an auditor’s estimates, which is unsurprisingly always much higher than any non-auditor on the planet would estimate.
If you have questions about starting to keep records, the records you currently have or the records you kept in the past, call us! We’d love to help you make this year the year you started keeping the right records!
A New Start
As we begin 2021, most of us are looking forward to putting 2020 in the rearview mirror. 2020 was an extraordinary difficult year; a global pandemic closed businesses and schools, forced people into social isolation, and resulted in hundreds of thousands of deaths.
But as we enter the new year, we all hope and pray for positive changes. A vaccine to cure a dreaded disease, a change to our political leadership, and trillions in economic stimulus. Hopefully, these all combine to bring healing to our hearts, health, and economy.
Since 1995 I have been helping businesses with Sales and Use Tax problems. While my work pales in comparison to the work that was done by frontline workers, I was still given the opportunity to help hundreds of businesses during their tax struggles last year.
Many businesses may start 2021 in a hole. Sales Tax Defense LLC stands ready to help business with obtaining payment plans, penalty abatements and offers-in-compromise for those behind in their taxes. We will continue to vigorously defend those who are audited for sales tax or accused of wrongdoing by the government. And we will continue to provide proactive advice to clients who need tax interpretations, help them register wherever necessary, or have questions about nexus. We will also continue to help keep our clients in compliance by filing their sales and use tax returns, either in one state or every state (as needed).
Please rest assured, that whatever Sales and Use Tax help you need we will be here to support your business recover, grow, and soar to new heights!
-Mark L. Stone, CPA, Managing Partner