Does sales tax consulting make sense for you?

Public accounting firms are constantly seeking opportunities to expand or diversify their service offerings, especially when it can result in additional revenue at higher margins than traditional service offerings. 

With the advent of the Supreme Court's Wayfair decision, more businesses than ever find themselves with a sales tax compliance requirement — or at least questions about their sales tax obligations. How will your clients get their sales tax questions answered? Recognizing this need and your desire to remain the primary trusted advisor for your clients, providing sales tax consulting services can be a win-win for both you and your clients. 

Compliance work has historically been the bread and butter of accounting firms (no matter how often they complain about the Tax Code and the IRS). But increasingly, accounting and CPA firms have looked to expand into advisory services, becoming what the profession has long termed "a trusted advisor." Such a role can also take a firm beyond the pricing models of flat fees or hourly billing into value-added services — potentially a broader, longer-lasting and sometimes more professionally engaging moneymaker.

In a 2021 TaxConnex survey of financial executives', more than a third (35%) were still trying to figure out how to manage sales tax obligations four years after Wayfair. In a similar survey at the end of 2022, 58% of the financial professionals surveyed say they continue to manage their sales and use tax process internally, and the majority of respondents (over 60%) said they lacked the bandwidth or expertise to properly manage sales tax. 

Clearly there is demand for sales and use tax advisory services. But how do you get started? 

Getting started

1. Confirm a need or risk exists within your client base. The first step is to identify the need for sales tax consulting services — whether that is within your own client base or in a market you might desire to serve. Sales and use tax can affect businesses of all sizes and in virtually any industry. You may find pent-up demand within your own client base is the best place to start. 

Below are two things you should be doing to identify a potential sales tax need or risk within your existing clients. 

• Determine your client's sales tax nexus footprint. Compare the state income tax filing calendar to the state sales tax filing calendar. If your client is filing an income tax return in a state but is not filing a sales tax return, they may be exposed. Evaluate your client's gross receipts during the prior 12 months to identify potential economic nexus (revenue in excess of $100,000 is a common threshold across the states for sales tax nexus). Identify any physical presence such as employee payroll or office locations your client has (temporary or permanent) in states where they are not already registered for sales tax purposes. 

• Determine taxability of your clients' primary revenue streams. Once you have identified states in which sales tax nexus exists, determine if any of the revenues derived from those states are subject to sales and use tax. Where your clients' revenues are subject to sales and use tax, do they sell to exempt entities (i.e. resellers, nonprofits, manufacturers, government, etc.)? If so, does the client have adequate documentation (resale/exemption certificates) to support its exempt sales?

2. Get buy-in from the partner/management team. For any new service offering to succeed, there must be consensus from the entire partner/management team and a commitment to supporting the necessary steps/actions. Understanding both the risk of sales tax noncompliance as well as the threat of loss to a competitor are additional incentives beyond just the additional revenue potential of adding the sales tax service. 

3. Identify and secure the necessary resource(s). Sales tax consultancy is usually split into four buckets: determining nexus (both physical and economic); understanding the taxability of products and services; mitigating exposure; and audit support. 

If you don't already have sales tax expertise within your practice, you can: 

• Hire an experienced sales tax professional. While this would result in immediate credibility, it is often difficult to find a quality sales tax resource in today's climate.
• Train existing resources. Have someone within the practice develop the knowledge base. Focus on a particular industry/client segment and a specific component of sales tax, such as nexus or taxability, and then expand the knowledge base as the opportunities necessitate. While sales tax is a niche within the overall tax ecosystem, its broad application to all industry segments and the nuances that exist from state to state make establishing expertise in the area challenging and time consuming.
• Partner with another firm or provider with the expertise. Whether you are reselling services or referring to a trusted partner, as long as your client receives the support they need, you keep the client happy and avoid them engaging with a competitor. 

While there are challenges to consider when deciding whether or not to add sales tax consultancy to your service offerings, the impact of sales tax obligations and risk to your clients can be significant. If you aren't addressing this issue with your client, who is? 
Secure your client base; get in front of the potential sales tax risk; expand your portfolio of services; and increase both revenue and profits for you and your firm!