If there is one takeaway from this series, it is that dealing with sales tax nexus, its implications, and the ever-shifting landscape of sales tax requirements is a complex and time-consuming process. It can also be very expensive, in terms of internal resources as well as penalties when you don’t get it right. According to a 2006 independent survey of more than 500 finance executives, small to mid-sized companies average more than $327,000 in annual costs to manage sales tax compliance, yet still end up paying an average $32,000 each year in penalties and interest due to errors and omissions.
Clearly, for small to mid-sized companies, trying to manage sales tax compliance using only in-house resources and relying on manual processes is a costly mistake. If you’re a fast growing company, the mistake just compounds each time you enter a new revenue-hungry taxing jurisdiction, launch a new product or services, add a new line-of-business, acquire a new company, etc. Thus, it’s highly advantageous to seek outside help, both to raise your sales tax compliance expertise and to bring down your costs of compliance.
We recommend the following course of action:
- Be proactive. Don’t wait until you receive a nexus questionnaire-leverage outside professional sales tax services and counsel to help you conduct a thorough nexus study of your activities upfront, and continue leveraging these expert resources as you grow to help manage your nexus exposure. In the long run, it’s substantially less expensive than trying to hire, train and maintain expensive in-house expertise.
- Automate. Manual processes for managing sales tax are time-consuming, resource-intensive and error-prone. Automation streamlines the process and eliminates the errors. Where this was once only an option for larger enterprises, new on-demand and managed services now enable small to mid-sized companies to enjoy the benefits of automation, coupled with a range of essential services including expert tax research, automated preparation of monthly audit data and signature-ready returns, and on-demand professional help in managing audits should they arise.
The one thing you don’t want to do is trust that you can continually cover all the bases of nexus by yourself. Nexus is stealthy-it creeps up on you, leaving you sitting on a hidden penalty and interest time bomb. Nexus is multi-faceted-there are so many ways to fall into it, state by state. Nexus is dynamic-the rules change continuously. Nexus is necessary-at least to taxing jurisdictions, which are increasing creative and aggressive in their enforcement.