IMGCAP(1)]State regulators are now collecting nearly $400 billion in sales tax as compared to 2003 when they collected just over $250 billion.
This growing trend is a consequence of complex regulations, and new business models and technologies, according to Ryan Himmel, CPA and chief executive of BIDaWIZ, Inc., a networking and marketing platform for small businesses and accounting firms.
“Companies of all sizes need to have appropriate reporting processes in place to meet state sales tax regulations. Sales tax revenue remains an attractive component for generating state revenue,” he said.
In fact, nearly half of state revenue is derived from sales tax sources, according to Himmel. “Specifically, general sales tax accounts for 30.1 percent of total state tax revenue and selective sales tax (liquor, fuel, tobacco) totaled 16.3 percent in 2013,” he said.
“State regulators try to collect every dollar that is owed to them,” he observed. “Sales tax collections have steadily increased over the past 10 years. States are now collecting nearly $400 billion in sales tax as compared to 2003 when they collected just over $250 billion.”
To understand the sales tax issues affecting small- and medium-sized businesses, Himmel analyzed over 2,200 sales tax questions sent to his team of tax professionals over a 12 month period ending Nov. 30, 2014. Clients varied by location, size, industry, tax personnel and sales channel.
The types of sales tax questions varied by state. For instance, almost a third of clients with sales tax questions that related to internet taxation had a presence in California, Himmel noted. “This is likely due to the fact that sales tax in general is more complicated for California sellers than in other states,” he said.
Product or service taxability was a major concern for Washington and New York-based clients, according to Himmel. “The regulations for both of these states are complex as it pertains to whether or not certain products or services are taxable,” he said.
Separately, New York, California and Washington had the most sales tax compliance-related inquiries, covering exemption certificate management, frequency of remitting sales tax returns, and calculating the sales tax rates. Tax nexus rules pose a greater risk to businesses with a presence in New York, California, Texas and North Carolina, according to the survey. “Most of these states have widening sales tax nexus rules, and they collect and have increased their sales tax collections for remote sellers,” said Himmel.
The majority of questions were in reference to clients in the following industries: auto dealerships and repair providers, restaurants and food service suppliers, software and development companies, apparel businesses, industrial goods and service providers, and online sellers. “All of these industry groups share certain characteristics in having a large variety of products, services, customers, locations and sales channels,” Himmel said. “Accountants need to identify clients with these sales tax risk profiles and create a plan or recommendations to alleviate those concerns.”
In instances in which practitioners do not have sales tax expertise, Himmel recommends they consider partnering with an accountant or firm that can fill that void. “A large portion of solo practitioners and small firms do not have sales or use tax expertise,” he said. “We believe this presents an opportunity for sales tax compliance solution providers to develop software geared toward assisting practitioners with addressing client inquiries.”
