Entrepreneurial Series ~ Intro – Sales & Use Taxation: Part 1 of 5

Sales & Use Tax Series: 5 Thing to Understand About Your Nexus Footprint ~ How to limit sales and use tax liability and minimize audit exposure

In this series, you will learn:

  • What nexus really means
  • How it can impact you this year
  • Why you need to determine your nexus exposure
  • How to deal with nexus issues
  • Who to call to minimize the effect of nexus on your business

~

Introduction

“forewarned is forearmed” – 8-PAC Editor

Nexus, Latin for a connection or common link, was never meant to be a threatening word. But for businesses today, the threat of creating sales tax nexus within a taxing jurisdiction has given the word a new and highly negative connotation. Small- to mid-sized and fast-growing companies in particular are in a double bind regarding sales tax nexus: they’re sizable and busy enough to find themselves in the increasingly broad sights of local tax officials, but they typically lack the expertise and means to minimize their tax liability and audit exposure.

The complexities and fluidity of nexus can be overwhelming and require the constant attention of a tax expert to navigate, but most small- to mid-sized businesses cannot afford that kind of resource internally. Meanwhile, the penalties of under-collecting, underreporting and underpaying can be huge-and there’s rarely a statute of limitations, meaning states can go back for years to collect what’s due if they discover you haven’t properly met your sales and use tax obligations.

If it is determined that you should have collected the tax from your customer, and you failed to, then you just reduced your profit margin. Sales taxes should not be a direct cost to a seller – rather you should act as an agent for the state. But, if you didn’t collect the tax, you just increased your cost by the tax that you should have collected. Can your business absorb the impact of an average tax rate of 8 percent? You normally have the option to try to collect the tax due from your customers – but what if they are no longer a customer, out of business or just refuse to pay you years after the transaction occurred? Then there goes your profit. And that is just the tax amount. Add to this penalties and interest. Even if you survive an audit unscathed, the process itself can be a significant time and resource drain.

Revenue-hungry states are becoming increasingly aggressive in attempting to catch transgressors. But forewarned is forearmed. To help you reduce your exposure, this series examines the significance and the vagaries of sales tax nexus. We will discuss the activities that create nexus, what having nexus requires you to do, the key mistakes to avoid when completing a state nexus questionnaire and how to deal with problems you may discover.

Boston Warwick LLC

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