Based on a poll of attendees at a recent Margolin, Winer & Evens LLP webinar on sales and use tax, it’s clear that income tax compliance, sales/use tax compliance and financial reporting are the biggest concerns facing accounting departments over the next 12 months.
More than 500 professionals attended the webinar (2016 SalesTaxPerspective 8.1.16). These professionals represent a diverse population of individuals including those who work for accounting firms, law firms, government entities and in-house accounting departments. The attendees were asked to pick which of several accounting activities would occupy the most resources over the next 12 months. Income tax compliance was the most-cited activity, with sales/use tax compliance placing second in a dead heat with financial reporting.
In fact, sales/use tax compliance is even more important to the subset of respondents who work in their company’s in-house accounting department. A full third (34 percent) of this sub-group of accountants rated it the most impactful issue they had to deal with, second only to financial reporting. For this group, ensuring income tax compliance and managing monthly payroll and employment taxes were distant third- and fourth-place.
There are many components that contribute to complying with the myriad of complex sales and use tax rules. These include:
- Maintaining knowledge of your organization’s revenue streams and taxability
- Reviewing your company’s activities and determining whether your company’s activities create nexus in new jurisdictions
- Maintaining exemption certificates
- Managing sales tax examinations
- Understanding the taxability of new services or products
Of the above, webinar attendees said that determining nexus was the element that caused them the most concern. With that in mind, businesses should consider the following questions in reviewing their sales and use tax compliance procedures:
- Has your company acquired or started new business operations that may include activities in new or additional states?
- Has your company added new revenue streams i.e. such as services or new products that may require your company to send employees or engage independent contractors in new or additional states?
- Has your company entered into agreements with new logistics or “cloud” based vendors whose terms may create nexus in new jurisdiction?
Based on these responses as well as our experience over the last 12 months with our own clients, we anticipate that both state and local income tax and sales use tax will continue to be hot button items for multistate businesses and their tax advisors.