Monika Miles, Author at Multi State Tax Solutions | Miles Consulting Group

Establishing Presence: A Guide to Sales Tax Nexus Reviews

So, you’re selling a product…to customers…in all states in the US. You’re a US company selling widgets or software or services, or you’re a foreign company selling gadgets – all destined for US customers (whether individual consumers or businesses). Business is growing, sales are increasing. Congratulations!

First next step? Determine if you need to be collecting and remitting sales tax on those sales. Note – you probably do! And that starts with nexus.

When selling to US customers and then dealing with the many sales tax regulations in our 50 states, understanding the concept of nexus is paramount for businesses aiming to stay compliant and avoid potential penalties. Nexus, in essence, refers to the connection or presence that a business has in a particular state, which can trigger the obligation to collect and remit sales tax. However, determining whether a business has established nexus in a given jurisdiction requires a comprehensive assessment known as a nexus review.

What is a nexus review?

A nexus review involves a thorough examination of various factors, including a business's physical presence, economic activities, and digital footprint, to determine whether it has crossed the threshold to trigger sales tax obligations in the state, or states, in which it operates. This process is essential for businesses to assess their compliance status accurately and identify potential areas of risk. By understanding the intricacies of nexus reviews, businesses can proactively manage their sales tax responsibilities and navigate the complexities of multi-state taxation with confidence.

Let’s unpack that here – understanding economic nexus, physical presence, the review process and how to evaluate your business’s nexus requirements. Here’s a breakdown:

Understanding Economic Nexus & Physical Presence (whichever comes first)
- Economic nexus, triggered by certain criteria, defines a business's virtual presence in a state, necessitating sales tax compliance even without physical presence.
The Nexus Review Process
- A step-by-step evaluation of a business's activities and transactions to determine sales tax obligations, ensuring accurate compliance assessment.
Nexus Across Different States
- Variations in state laws necessitate a nuanced understanding of nexus criteria, with some states following Multistate Tax Commission (MTC) guidelines.

Not what you’re looking for? Let’s talk. Reach out to us at info@milesconsultinggroup.com

1. Understanding Economic Nexus

Since the 2018 U.S. Supreme Court case of South Dakota v. Wayfair, at the heart of sales tax nexus has been the concept of economic nexus, which pertains to a business's virtual presence in a state, rather than its physical location. Economic nexus is triggered when a business meets certain criteria, such as reaching a specified threshold of sales revenue or transaction volume within a particular state. This criterion varies from state to state, underscoring the importance of understanding each jurisdiction's regulations to determine potential tax obligations. Before Wayfair, companies had to worry only about creating physical presence (employees, contractors, inventory, an office in the state). But now companies need to ask – “Do I have physical presence and/or economic nexus?” Because determining nexus is just step one in the process. (See below for the NEXT steps, but first more nexus.)

2. The Nexus Review Process

Conducting a thorough nexus review is crucial for businesses to accurately assess their sales tax obligations. The process involves several steps aimed at evaluating the business's activities and transactions to determine whether nexus, or a significant enough connection for a threshold, has been established in various states. Here’s a short guide outlining the steps involved in conducting a nexus review:

Gather Information: Begin by gathering detailed information about the business's activities, including sales volume, physical presence, and digital activities. This information serves as the foundation for the nexus review process.
Identify Potential Nexus Triggers: Review state-specific nexus laws and regulations to identify potential triggers that could establish nexus in each state. These triggers may include physical presence, economic nexus thresholds, affiliate nexus, and more.
Assess Physical Presence: Evaluate the business's physical presence in each state. This includes locations of offices, warehouses, employees, agents, or any other physical assets that could create nexus. It also includes the activities of third-party contractors doing work on a company’s behalf. This is often an area of confusion for companies.
Analyze Economic Nexus Thresholds: Determine whether the business has met the economic nexus thresholds set by each state. Economic nexus is established based on the volume of sales, transactions, or revenue generated within the state, irrespective of physical presence. Timing is important here, as states have varying thresholds, timing and which sales are included in the threshold.
Review Digital Activities: Assess the business's digital activities, including online sales, advertising, affiliate relationships, and other digital marketing efforts. Some states may assert nexus based on these digital activities.
Evaluate Affiliate Nexus: Determine whether the business's relationships with affiliates in certain states create nexus under affiliate nexus laws. Affiliate nexus rules vary by state and may depend on factors such as revenue generated through affiliate referrals.
Document Findings: Document the findings of the nexus review, including the states where nexus has been established, the types of nexus triggers identified, and any potential liabilities or compliance requirements. This is a key step in determining next steps toward retroactive remediation and becoming current with sales tax filings.
Consult with Tax Professionals: Seek guidance from tax professionals specializing in state and local taxation to ensure accuracy and compliance throughout the nexus review process. Miles Consulting can help.
Implement Compliance Measures: Based on the findings of the nexus review, implement appropriate compliance measures to fulfil sales tax obligations in states where nexus has been established. This may include registering for sales tax permits, collecting and remitting sales tax, filing tax returns, and maintaining proper documentation.

We said above that the nexus determination (and all these steps to get there) was just Step 1 in a process to get compliant. Once a nexus study has been performed, and nexus dates established, a company needs to address the next set of important steps:

Determine whether the products or services sold are subject to sales tax in the states in which nexus has been created. We recommend clients review all major revenue streams as different products are treated differently and of course, vary from state to state.
If it’s been determined that a product or service is taxable, then query further to see if there may be an exemption available. Exemptions may include sales for resale, sales to exempt entities (governments, non-profit organizations, hospitals, etc.). Note that exemptions also vary by state.
Is the company compliant with sales tax filings as of the nexus creation date? Most likely not – and remediation of past exposure must be addressed before a company can come forward and file correctly for current and future periods. We discuss remediation options in another blog. Read it here.

And, YES, we can help with these steps…contact us for a short consultation.

3. Nexus Across Different States

Navigating sales tax nexus across different states presents a formidable challenge due to the wide array of variations in sales tax nexus laws. Each state has its own set of rules and regulations for determining nexus, leading to a complex and often confusing landscape for businesses. Understanding these variations is essential for businesses to ensure compliance and avoid potential liabilities. These are the points to consider when determining your nexus requirements:

Variations in Nexus Laws

Sales tax nexus laws vary significantly from state to state, creating a patchwork of regulations that businesses must navigate. These variations can include differences in thresholds for establishing nexus, definitions of taxable activities, and interpretations of nexus triggers such as physical presence, economic activity, affiliate relationships, and more.

Complexity of Compliance

The complexity of compliance with sales tax nexus laws is compounded by the lack of uniformity among states. Businesses operating in multiple states must contend with different compliance requirements, filing deadlines, tax rates, and exemptions, making it challenging to maintain accurate and timely compliance across all jurisdictions.

Multistate Tax Commission (MTC) Guidelines

The Multistate Tax Commission (MTC) is an intergovernmental state tax agency that provides guidance and recommendations to states on various tax issues, including sales tax nexus. While the MTC offers model statutes and guidelines aimed at promoting uniformity and consistency in state tax laws, not all states adopt these guidelines in their entirety.

Adoption of MTC Guidelines

Some states choose to adopt MTC guidelines or incorporate them into their own state tax laws. These states may follow MTC recommendations on nexus thresholds, definitions of taxable activities, and other nexus-related matters to promote consistency and simplify compliance for businesses operating across state lines.

However, many states have divergent approaches to sales tax nexus and often deviate from MTC guidelines in favor of their own unique criteria for establishing nexus. This divergence can create confusion and uncertainty for businesses trying to understand their sales tax obligations in different states.

Evolution of Nexus Standards

The concept of sales tax nexus continues to evolve in response to changes in business practices, technological advancements, and legal developments. States may adapt their nexus standards to address emerging issues such as online commerce, remote sales, digital advertising, and marketplace facilitation, further complicating the compliance landscape for businesses.

Legal Challenges and Court Decisions

Legal challenges and court decisions also influence the interpretation and application of sales tax nexus laws. Landmark US Supreme Court cases such as Quill Corp. v. North Dakota and more recently, South Dakota v. Wayfair have shaped the nexus landscape by addressing issues related to physical presence, economic nexus, and the authority of states to impose sales tax obligations on remote sellers.

State-Specific Considerations

Businesses must consider state-specific factors when evaluating their sales tax nexus exposure in each jurisdiction where they operate. These factors may include state-specific nexus thresholds, exemptions, sourcing rules, tax base definitions, and administrative requirements that vary from state to state.

To have a clearer view of each state’s economic nexus threshold requirements, in a table format for easy comparison, read this article: Explaining Nexus Threshold By State.

Understanding and reviewing sales tax nexus is imperative for businesses aiming to thrive in today's complicated regulatory landscape. By grasping the nuances of economic nexus, conducting thorough nexus reviews, and staying vigilant of state-specific regulations, businesses can proactively manage their sales tax obligations and mitigate potential risks.

It’s a complex issue, so don’t go at it alone. Come to Miles Consulting Group - book a consultation, drop us a line, or send us an email at info@milesconsultinggroup.com

by Monika Miles

Arizona & Colorado and Sales Tax – SaaS, Software & Other

This month, we continue our blog series with a contrast of a couple of western states – Arizona and Colorado – specifically their treatment of technology items for sales tax purposes.

Wait! Already know you need help with Arizona or Colorado issues? Please reach out to us at info@milesconsultinggroup.com

Software as a Service (SaaS) in Arizona vs. SaaS in Colorado

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, these two states vary significantly regarding their treatment of sales tax for technology products.

Cloud Computing Services are subject to sales and use tax in Arizona.

Arizona imposes a transaction privilege tax (see below) on gross receipts derived from the sale of computer software programs and applications regardless of the method that a retail business uses to transfer the information to its customers. As such, companies selling a SaaS subscription based product to Arizona customers must collect tax on the transaction.

SaaS is not taxable in Colorado.

Effective July 1, 2012, computer software is not taxable when delivered through an application service provider, delivered by electronic computer software, or transferred by load and leave computer software delivery. As such the state of Colorado does not require collection of tax on SaaS subscription based products. However, it is important to note that SaaS is taxable in the cities of Denver, Colorado Springs, Boulder and some of the other larger jurisdictions in the state. (Colorado has adopted an interesting (and also confusing) system by which municipalities can adopt “home rule” status and essentially administer their own tax rules, which may differ from the state – as in the case of SaaS.)

Software in Arizona vs. Software in Colorado

Arizona does impose sales and use tax on prewritten computer software sold electronically.

Canned computer software delivered electronically is subject to Arizona's transaction privilege tax under the retail classification and to the corresponding use tax.

Prewritten computer software delivered electronically is not subject to tax in Colorado.

The sale of custom computer software delivered electronically is not subject to tax in Arizona.

The sale of custom software delivered electronically is considered a nontaxable service and therefore not taxable.

The sale of custom computer software delivered electronically is not subject to tax in Colorado.

Custom software delivered electronically is exempt from tax.

Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video. Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In Arizona, digital products are taxable.

Gross receipts from sales of digital products that are delivered electronically are subject to tax under the retail classification in Arizona.

In Colorado, digital products are also taxable.

Effective July 1, 2021, Colorado specifically includes digital goods in its statutory definition of “tangible personal property.” Prior to this amendment, however, digital goods were not specifically excluded from the statutory definition, and the method of delivery did not impact the taxability of tangible personal property.

Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. Items often include clothing, school supplies and computers, and often coincide with the “back to school” months of the year. These holidays vary greatly by state. However, neither Arizona nor Colorado offers specific sales tax holidays.

For more information on sales tax holidays, click here.

Special Notes

Although commonly referred to as a sales tax, the Arizona transaction privilege tax (TPT) is actually a tax on a vendor for the privilege of doing business in the state. Various business activities are subject to transaction privilege tax and must be licensed. For more information on the TPT, click here.

Economy

Early in its history, Arizona’s economy relied largely on the “five C’s:” copper, cotton, cattle, citrus, and climate (tourism). Copper is still extensively mined from many expansive open-pit and underground mines, accounting for two-thirds of the nation’s output.

Today, the composition of the state’s economy is moderately diverse; although health care, transportation and the government remain the largest sectors.

Arizona’s agricultural output is pretty evenly distributed between crops and livestock. About 47% of Arizona’s agricultural production is in livestock. The other 53% is in crops. In terms of revenue generated, Arizona’s top five agricultural products are cattle and calves, lettuce, dairy products, cotton and hay.

Colorado is considered the 8^th largest state area wise and has a very diverse geography. From the Colorado Eastern Plains to the Rocky Mountains, the state takes full advantage of the land and much of it is favored towards the agriculture industry. In fact, over 60% of Colorado’s land is used for agriculture. Livestock is one area of agriculture that has done especially well. Colorado has over 15,000 beef producers, 200 feedlots, and 20 USDA certified slaughter plants. Beef is the number one agricultural commodity from the state. In addition to livestock, the state is also the nation’s leader in producing beer, with nearly 150 breweries. Denver, Colorado is known as the “Napa Valley of Beer.”

The extensive geography plays in the state’s favor also for tourism. Colorado is considered the “Switzerland of America,” because of its collection of mountains that are ideal for winter sports. These mountains attract millions of tourists to flock to ski resorts and has contributed in making Colorado #1 in the nation for overnight ski visits. Asides from the winter attractions, Colorado’s outdoors is just as enjoyable in all the other seasons.

Arizona Fun Facts:

Arizona leads the nation in copper production.
Oraibi is the oldest Indian settlement in the United States. The Hopis Indians founded it.
The famous labor leader, Cesar Estrada Chavez, was born in Yuma.
The world’s largest solar telescope is located at Kitts Peak National Laboratory in the city of Sells.
The age of a saguaro cactus is determined by its height.

Colorado Fun Facts:

The 13^th step of the state capital in Denver is exactly 1 mile above sea level.
Colorado was nicknamed The Centennial State because it became a state 100 years after the US Declaration of Independence (1776).
In Denver, Colfax Avenue is considered the longest continuous street in America, running 53.3 miles.
Colorado has the highest mean altitude (6,800 feet) of all the states.
Katherine Lee Bates wrote “America the Beautiful” after being inspired by the views from Pikes Peak.
Colorado is the only state in history to turn down the Olympics. Denver could have hosted the event in 1976, but state voters voted against it.

We invite you to further explore Arizona and Colorado in these earlier blogs we crafted over the years. For Colorado, click here. For Arizona, click here. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Arizona, Colorado, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.

by Monika Miles

Are You A Marketplace Facilitator? Important Things You Need To Know

As the preference for online shopping continues to expand, almost all states have passed marketplace facilitation legislation. Since legislation does vary state to state, it is important to be prepared and understand your tax obligations as a marketplace facilitator.

In this article we will break down areas that our marketplace facilitator clients have difficulties with and how we are able to help them.

And as with many tax requirements we discuss in our blogs, the matter of economic nexus and how it fits in is a driving factor to understanding your filing obligations as a marketplace facilitator. The crux of the matter here is whether the marketplace seller’s sales on a marketplace through a marketplace facilitator (i.e., you as the facilitator) count toward their economic nexus threshold (i.e., $100,000 or 200 transactions). And as you can imagine this will vary by state, so the concept can get somewhat complex. We’ll address these matters here too and define the requirements for both facilitator and seller.

Before we go on, remember, at Miles Consulting we’re here to guide you through all of your unique tax challenges, whether you are a seller, a marketplace facilitator, or aren’t sure! Let’s talk. Reach out to us at info@milesconsultinggroup.com.

What Is A Marketplace Facilitator?

Let’s start with the basics. How do you know if your organization is a marketplace facilitator (or “MPF”)? The first step is to have a clear understanding of what a marketplace facilitator is.

As explained by TaxJar, a marketplace facilitator is a business that contracts with a third party (a “marketplace seller” or “MPS”) to sell goods or services on its platform. Amazon and Etsy are two examples of well-known marketplace facilitators. Marketplace facilitation tax compliance can get tricky because sales tax obligations for MPFs vary by state. Avalara shares a helpful guide to marketplace facilitator legislation to help you get to know the basics. In its easiest definition, an MPF brings together buyers and sellers on its own platform, but does not generally take title to the inventory being sold.

We include here some definitions from California’s marketplace facilitator statutes, to show the technical aspects of the law. Many states have similar criteria to California’s. (But it’s still important to review each state individually when you find yourself in the position of a MPF.)

Effective Oct. 1, 2019, marketplace facilitators are considered the seller and retailer for each sale they facilitate through their marketplace and must register and collect sales tax.
Marketplace facilitators are required to register and collect tax if they actively sell tangible personal property in the state, are a retailer engaged in business in the state, or have an economic nexus with California. In determining whether the marketplace facilitator has sufficient nexus with California, the facilitator must include both sales it facilitates and sales made on its own behalf. (Note that nexus creation is important – it can be created by physical presence or economic nexus. For economic nexus purposes, CA requires a marketplace facilitator to make sales of $500,000 or more in a calendar year before triggering the filing requirement. But that includes all sales made to CA through the marketplace.)
A marketplace is a physical or electronic place (such as a store, booth, website, catalog, television or radio broadcast, or dedicated sales software application) where marketplace sellers offer for sale tangible personal property, regardless of whether the property, seller, or marketplace has a physical presence in California.
A marketplace facilitator is a person who contracts with marketplace sellers to facilitate, for consideration, the sale of the seller’s products through a marketplace operated by the person or related persons, and:

- directly or through one or more related persons: transmits the offer from the buyer to the seller; owns the infrastructure that brings buyers and sellers together; provides a virtual currency that buyers can or must use to purchase items from sellers; or certain software development or research and development activities related to its marketplace; and
- with respect to the seller’s products: engages in payment processing, fulfillment or storage services; lists products for sale; sets prices; brands sales as those of the facilitator; takes orders; or provides customer service or accepts or assists with returns or exchanges.

The above definitions are important because they show how easily a company can fall into the marketplace facilitator role, simply by meeting just a few simple rules including providing the platform, facilitating the exchange of payment and providing customer service – which most such platforms do!

Requirements: Facilitator and Seller

Once physical presence or economic nexus has been created, the marketplace facilitator will need to register for a sales tax permit and collect and remit taxes on marketplace sales, but the issue is whether the marketplace seller is also required to also get registered in a state and collect taxes on non-marketplace sales.

Using California’s Marketplace Facilitator Act, let’s unpack the requirement of each as a comparison:

Facilitator

Starting from October 1, 2019, a marketplace facilitator, such as an online shopping platform (like Amazon, for example), is considered both the seller and retailer for each transaction that occurs on its platform. This determination is crucial for the marketplace facilitator to ascertain whether it needs to register with the California Department of Tax and Fee Administration (CDTFA) for a seller's permit or Certificate of Registration – Use Tax.

Moreover, if a marketplace facilitator is registered with or required to register with CDTFA as a retailer and facilitates the sale of tangible personal property by a marketplace seller, it is regarded as the retailer responsible for selling or conducting the sale of the tangible personal property through its platform. Consequently, the marketplace facilitator typically must remit sales tax or collect and remit use tax on all retail sales of tangible goods delivered to California customers facilitated through its platform for marketplace sellers.

These requirements for marketplace facilitators are separate from any other sales or use tax obligations they may have. For instance, a marketplace facilitator is accountable for reporting and remitting tax on the retail sales of its own tangible goods made through its platform. If you're a marketplace facilitator, it's advisable to furnish documentation to all your marketplace sellers stating that you are registered with CDTFA and will handle sales tax and use tax collection for their sales of tangible goods facilitated through your platform.

Under the Marketplace Facilitator Act, marketplace facilitators might be exempt from tax on retail sales conducted through their platform if certain conditions outlined in either Revenue and Taxation Code section 6046 or Revenue and Taxation Code section 6047 are met. (Note that the burden of proof to rely on these sections is very high. We’ve recently been working with a client that relied on these sections as part of its planning in this area, and has been in conflict with the CDTFA’s interpretation. As with so many areas of sales tax law, the devil is in the details. We recommend to contact a specialist before taking these positions.)

Seller

As a marketplace seller, starting from October 1, 2019, a significant change occurred where you are no longer regarded as the retailer for your sales of tangible goods facilitated through a marketplace, as outlined by the law, if the marketplace facilitator is registered or obligated to register for a seller's permit or Certificate of Registration – Use Tax. By way of example, this situation occurs where a company may contract exclusively with an online marketplace, like Amazon, to sell its products.

Furthermore, commencing October 1, 2019, if all your retail merchandise sales are facilitated by a marketplace facilitator registered as a retailer with CDTFA, you, as a marketplace seller, are exempt from the requirement to register with CDTFA for a seller's permit or Certificate of Registration – Use Tax. Where companies get into compliance issues is where not ALL of their sales run through the marketplace facilitator – some still run through their own website, for instance (see more discussion below)

From October 1, 2019, the responsibility of the retailer for collecting and remitting tax to CDTFA on these facilitated sales for delivery in California lies with the marketplace facilitator. Nonetheless, if you, as a marketplace seller, conduct any sales of tangible goods in California or for delivery in California that are not facilitated by a registered marketplace facilitator, you may need to register with CDTFA. Essentially, a marketplace seller is typically obliged to register with CDTFA if they conduct direct sales of tangible merchandise to California customers without utilizing a marketplace or if they are a retailer conducting business in this state due to either having a substantial physical presence or an economic nexus with California.

To ascertain whether you, as the marketplace seller, have economic nexus in California, you must consider all sales of tangible merchandise for delivery within this state, encompassing both your direct sales and those enabled through a marketplace facilitator's platform as described above.

And that’s just California! Complicated, right? Don’t stress, though. Miles Consulting can help you with your marketplace facilitation needs (determining if you’re a marketplace facilitator or a marketplace seller, where you need to register, collect sales tax and file returns, and how to become compliant), in every state in which you have presence. Click here to find out more.

To have a clearer view of each state’s economic nexus threshold requirement, in a table format for easy comparison, read this article: Explaining Nexus Threshold By State.

Real Client Examples

To bring some color to the marketplace facilitator story, here are some of the situations in which we’ve recently helped our clients regarding marketplace facilitation:

A company provides a platform to match people requiring specific services with those who can provide the service, and needs assistance because some of the services provided through their platform are subject to sales tax, varying state by state.
A platform that finds purchasers for gently used clothing needs assistance because clothing is generally taxable, but there are some exemptions.
A company that matches sellers and buyers of specific manufacturing materials needs help because many of the sales on their website are not only through marketplace facilitators, but are also for resale.
A company that provides a platform for people who have specialty equipment to lease needs assistance in determining the taxability of lease transactions across the states.

The challenge in all of these situations, is not just the structure of the sale or the nature of the product or service sold – it’s that online marketplaces are by their nature multi-state and require even relatively small companies to be familiar with the laws of all the states. This is where we can help!

What Are Your Next Steps?

Once you determine whether or not your company is an MPF, what are your recommended next steps?

Review state economic nexus rules to determine whether the threshold has been met (and when). Many states have a sales threshold of just $100,000.
If nexus has been created, consider any prior exposure and quantify it.
Determine a path for remediation of prior liabilities.
Determine a plan forward for accurately collecting and remitting sales tax on sales made through the marketplace.

Do You Need Help With Your Marketplace Facilitation Tax Compliance?

Are you wondering how to tackle the “next steps” above? Do you have other marketplace facilitator questions? We recommend that people new to marketplace facilitation legislation never go at it alone, and with Miles Consulting Group in your corner, you’ll never have to. We’re standing by to help make the process clearer, and ensure you are compliant with the MPF legislation in your state. Contact us today.

by Monika Miles

Indiana Economic Nexus Threshold Amended

On March 13, 2024, Indiana Governor, Eric Holcomb, signed an emergency law amending Sales and Use Tax provisions in the state. The most notable of these provisions was to amend the economic threshold for sales tax nexus by removing the number of annual sales transactions in the state as one of the two triggers that require retail merchants to collect and remit state sales tax.

Background of Economic Nexus

In a past blog, we discuss the origins of economic nexus and where we were in 2023 – 5 years after the Wayfair case was decided:

https://milesconsultinggroup.com/blog/2023/06/13/on-the-5th-anniversary-of-the-wayfair-decision-the-impact-of-economic-nexus-on-small-and-mid-sized-businesses/

Have questions about economic nexus in Indiana or another state? Click here to schedule a free consultation:

In most states, the threshold began as either a sales limit or a transaction limit. For example, when South Dakota’s economic nexus law was enacted, it established a threshold of 200 transactions or $100,000, which many states later modeled as they passed their own economic nexus legislations.

Indiana’s original economic nexus law came into effect on October 1, 2018, and before this law change, the threshold was the lesser of $100K of sales OR 200 transactions.

Transaction Threshold Often an Unnecessary Burden

In their eagerness to pass economic nexus laws after Wayfair, many states followed the lead of South Dakota’s law which introduced both thresholds, a dollar amount and a number of transactions.

However, even at the beginning many states did not include the number of transactions in their threshold (i.e., CA and TX to name a few). A few states drafted their rules to read that a company must meet both thresholds (i.e.; New York, which requires $500,000 AND 100 transactions.)

In recent months a few other states have removed the transaction threshold as they realize that it puts an unnecessary burden on smaller companies selling small dollar value items. (For example, if a company sells a trinket worth $2.00, they’d hit the burden of having to register, collect sales tax, remit the tax and file either a monthly or quarterly return after selling just 51 trinkets.)

The following states currently only have dollar amount thresholds: AL, AZ, CA, CO, FL, ID, IA, KS, MA, MO, MS, NM, ND, OK, PA, SC, SD, TN, and TX. But stay tuned – several other states have indicated changes in the transaction thresholds are ahead. It seems that states are realizing that simply having a threshold based on sales dollar volume of $100,000 makes a lot more sense!

Other items in the newly signed law

The amendment to the law also includes a few other provisions that we’ll now discuss:

It allows a retail merchant that receives 75 percent or more of its receipts from the sale of prepared food to elect to claim a sales tax exemption on transactions involving electricity equal to 50 percent of the tax imposed on the transactions;
It specifies the pass through entity tax liability for pass through entities in certain circumstances;
It makes changes to certain statutes of limitations provisions and technical changes; and
It provides multiple effective and expiration dates for several provisions.

Click here to read more on this law.

Economic nexus is still an issue

While it seems like we’ve been talking about economic nexus for quite some time (we have – since the Wayfair decision in June 2018), we still see this as an area that clients need assistance to navigate.

If you are a retailer selling goods online, a SaaS company selling subscriptions in the cloud, or a technology company selling digital goods and related consulting, we can help determine your nexus start date and filing requirements in Indiana and every other state.

If you have any questions regarding this change in the law, please contact us at info@milesconsultinggroup.com.

by Monika Miles

Kentucky & Tennessee and Sales Tax – SaaS, Software & Other

This month, we continue our blog series with a contrast of a couple of southern states – Kentucky and Tennessee – specifically their treatment of technology items for sales tax purposes.

Wait! Already know you need help with Kentucky or Tennessee issues? Please reach out to us at info@milesconsultinggroup.com. Curious about SaaS in other states, check out this comprehensive article on SaaS in 20 states: https://milesconsultinggroup.com/blog/2021/06/01/what-to-know-about-the-taxability-of-saas-in-18-key-states/

Here’s how these two states compare:

Software as a Service (SaaS) in Kentucky vs. SaaS in Tennessee

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states are similar regarding their treatment of sales tax.

In Kentucky:

Effective January 1, 2023, Kentucky started imposing sales and use tax on computer software access services.

In Tennessee:

The state imposed sales and use tax on cloud computing services, including SaaS.

Software in Kentucky vs. Software in Tennessee

When it comes to the taxation of software, there are differences between Kentucky and Tennessee. Here's a comparison:

In Kentucky:

Sales and use tax are imposed on prewritten computer software sold electronically.
Tangible personal property, including prewritten computer software delivered electronically, is subject to sales and use tax.
The sale of custom computer software delivered electronically is exempt from tax.

In Tennessee:

Prewritten computer software delivered electronically is generally subject to sales and use tax.
Custom computer software delivered electronically is generally subject to sales and use tax.

Digital Goods

In Kentucky:

Digital products are subject to taxation.
Kentucky imposes sales and use tax on the sale of digital products, including e-books, music, and streaming video.

In Tennessee:

Digital products are also subject to taxation.
Tennessee law imposes sales and use tax on the sale, lease, licensing, or use of specified digital products transferred to or accessed by a customer within the state. This includes items like e-books, music, and streaming video.

Sales Tax Holidays

In Kentucky:

There are no sales tax holidays currently observed.

In Tennessee:

Tennessee offers sales tax holidays during specific periods:
- A sales tax holiday on food runs from August 1 to October 31.
- Another sales tax holiday allows tax-free purchases of up to $100 in clothing, $100 in school supplies, and $1,500 in computers from July 26 to July 28.

For more detailed information on Tennessee's sales tax holidays, you can visit this link.

For additional information on sales tax holidays across the United States, you can refer to this resource.

Economy

Kentucky

Early in its history, Kentucky gained recognition for its excellent farming conditions. It was the site of the first commercial winery in the United States (started in present-day Jessamine County in 1799) and due to the high calcium content of the soil in the Bluegrass Region, it quickly became a major horse breeding (and later racing) area. Today, Kentucky ranks 5^th nationally in goat farming, 8^th in beef cattle production, and 14^th in corn production. Kentucky has also been a long-standing major center of the tobacco industry- both as a center of business and tobacco farming.

Today, Kentucky’s economy has expanded to nonagricultural areas as well, especially in auto manufacturing, energy and fuel production, and medical facilities. Kentucky ranks 4^th among U.S. states in the number of automobiles and trucks assembled. Several vehicles ranging from the Chevrolet Corvette to the Ford Exhibition are assembled in the state.

Tennessee

Ranked among the top ten destinations in the U.S., tourism plays a major role in Tennessee’s economy. Domestic, as well as international travel, contributes to tourism in the state. Tourist attractions that people flock to are the Great Smoky Mountains National Park, Graceland, the Ryman Auditorium, the Gaylord Opryland Resort, Lookout Mountain and the Tennessee Aquarium.

Other major industries that contribute to the economy of Tennessee include agriculture and manufacturing. The state has over 82,000 farms, 59% of which supply cattle. Soybeans are heavily planted in the western portion of the state. Major corporations based in Tennessee include FedEx, AutoZone and International Paper. The U.S. Volkswagen manufacturing plant is also located in the state.

Kentucky – A Few Fun Facts

Chevrolet Corvettes are manufactured in Bowling Green, which is the site of the Corvette Museum.
The town of Murray is home to the Boy Scouts of America Scouting Museum located on the campus of Murray State University.
The state is home to the Louisville Slugger baseball bat museum, where the renowned baseball bats are made.
Teacher Mary S. Wilson held the first observance of Mother’s Day in Henderson in 1887. It was made a national holiday in 1916.
Lake Cumberland is the largest artificial American Lake east of the Mississippi River by volume.
Kentucky has a non-contiguous part known as the Kentucky Bend, at the far west corner of the state. It exists as an exclave surrounded completely by Missouri and Tennessee but is included in the boundaries of Fulton County.

Tennessee: A Few Fun Facts

When the constitutional convention met in 1796 to organize a new state out of the Southwest Territory, it adopted “Tennessee” as the name of the state.
Tennessee is nicknamed the Volunteer State, which came about after the War of 1812 due to the imminent role of volunteers supplied by the state in the war effort.
Tennessee is bordered by eight states and one river.
The 1982 World’s fair was held in Knoxville.
Tennessee leads the nation in the percentage of total tornadoes with fatalities.
The Gulf of Mexico is the main driving force in determining the climate of the state.
The state flag has three stars representing the three grand divisions of the state: West, Middle and East Tennessee.
The official state fruit is the tomato. As of 2013, it was the largest fruit crop in Tennessee.

Explore Kentucky and Tennessee further, and their relevant taxation mandates, in these past blogs we’ve crafted: Focus on Kentucky and Focus on Tennessee.

As always, our team at Miles Consulting Group is available to discuss the specifics of your situation, whether in Kentucky, Tennessee, or other U.S. States, to help you navigate the complex tax structures arising from multistate operations.

by Monika Miles

Preparing for a Sales Tax Audit: Tips and Best Practices for Middle-Market Business Owner

Navigating a Sales Tax Audit: A Comprehensive Guide to Protecting Your Business

If you’re reading this, you’ve probably received a letter of audit from a government entity. You’ve also likely now gotten over your initial anxiety and are looking for help with the next steps. You’re in the right place - we’re here to tell you that there’s no need to panic.

So, what exactly is a sales tax audit? And what can you expect?

Definition of a Sales Tax Audit

A sales tax audit is a rigorous examination conducted by state taxing authorities to review a business's sales tax returns, financial records, and transactions. The primary objective is to ensure compliance with applicable tax laws and regulations regarding the collection, reporting, and remittance of sales tax.

We know, sounds scary. But we can help you navigate the process successfully. In this guide, we’ll unpack various aspects of sales tax audits, including triggers for audits, documentation requirements, strategies for responding to audit findings, the role of tax professionals, and the possible consequences of an unsuccessful audit.

Here’s what you can discover:

Understanding Sales Tax Audits

Triggers for a Sales Tax Audit
Types of Sales Tax Audits
Common Misconceptions about Sales Tax Audits

Responding to Audit Findings

The Audit Process: From Notification to Resolution: Gain insights into the audit process, from receiving a notification to resolving discrepancies and finalizing outcomes.
How to Handle Audit Findings: Explore strategies for addressing audit findings effectively, including reviewing and collaborating with tax professionals.

What Happens If Your Sales Tax Audit is Unsuccessful?

An unsuccessful sales tax audit can result in financial penalties, interest charges, additional tax assessments, legal actions, and reputational damage, all of which can have significant consequences for businesses.

Can’t find what you’re looking for? Let’s talk. Reach out to us at info@milesconsultinggroup.com.

1. Understanding Sales Tax Audits

Sales tax audits are a critical aspect of tax compliance for businesses, with various triggers and types to be aware of. Here's a breakdown:

Triggers for a Sales Tax Audit: Audits can be triggered by various factors, such as random selection by tax authorities, discrepancies in tax returns, unusual patterns or fluctuations in reported sales figures, or tips from whistleblowers. A large refund request may also trigger an audit.
Types of Sales Tax Audits: There are different types of audits, including managed audits initiated by tax authorities, , and desk audits conducted remotely without onsite visits. Also, sometimes a company may receive an information request that’s not an audit yet but is a questionnaire or other request. Failure to respond to these requests often leads to an audit.
Common Misconceptions about Sales Tax Audits: Misconceptions include beliefs that audit notices can be ignored or that businesses can handle audits without professional assistance. It's crucial to understand the seriousness of audit notifications and the potential consequences of non-compliance. So, never go at it alone. Miles can help.

Dealing With The Initial Audit Letter or Notice

To begin with, it's crucial to promptly acknowledge the audit request, even if you're not fully prepared to address it. This initial communication sets the tone. Typically, auditors are willing to negotiate a reasonable timeframe for the audit process. Requesting a short extension, typically a few weeks, is common and often accommodated.

Again, it's advisable not to handle the audit alone. While you may initially respond to the request directly, seeking assistance from a seasoned professional to manage the ongoing audit is recommended. This outside perspective is valuable because:

You might be too close to the situation to assess it objectively.
There's a risk of providing inappropriate responses to queries.
Unintentionally disclosing information that could undermine your position is possible.
Other members of your team might divulge seemingly irrelevant details that could be detrimental.

Before divulging financial information, it's wise to conduct a pre-audit assessment. Read the 3rd blog article in our tax audit series, The Pre-Audit, for more help. Timing is crucial, as the auditor typically requires data promptly. However, it's essential to gauge potential exposure before sharing sensitive data. This pre-audit evaluation should encompass:

Assessing the tax implications of your products and services. For example, are your various revenue streams properly categorized as taxable or exempt? If the determination is not clear or it’s in a gray area, do you have evidence supporting your position?
Reviewing the accuracy of previously filed returns.
Ensuring the availability of supporting documentation such as resale or exemption certificates. We often work with clients who have a large number of sales for resale. While it may seem clear that those transactions are exempt, upon audit, a seller must be able to provide valid resale certificates. If not current, now is the time to reach out to customers and obtain the certificates!

Lastly, when the audit is underway, use us as your go-between – we do it all the time. Note that procedurally, your consultant will need a power of attorney to begin communicating with an auditor. Once filed, auditors will begin directing all questions to the consultant.

2. Responding to Audit Findings

The audit process involves several stages, starting with the notification from tax authorities and progressing through the examination of financial records to the resolution of any discrepancies, and finally the assessment. This process often takes several months from start to finish as there tends to be a lot of back and forth between the company and the auditor. Auditors and companies dance between information document requests (“IDRs”) on the state side and supporting documentation on the company side. There can be various iterations of this exercise. Be prepared for the long haul. Here's how to effectively handle audit findings:

The Audit Process: From Notification to Resolution

Upon receiving a notification from tax authorities, businesses undergo a thorough examination of their financial records. This process entails the review of various documents and transactions to ensure compliance with tax regulations. Subsequently, the findings of the audit are communicated to the business, highlighting any discrepancies or errors identified during the examination. Finally, businesses work towards resolving these issues through negotiation with tax authorities or, if necessary, through the appeals process.

How to Handle Audit Findings

Upon receipt of audit findings, it's crucial for businesses to carefully review the results. This involves a detailed examination of the discrepancies or errors identified by tax authorities. Businesses should then take proactive steps to address these issues, which may include providing additional documentation or explanations to clarify any misunderstandings.

Miles will step in here to develop a comprehensive response strategy to effectively resolve audit findings and mitigate any potential penalties or liabilities, if possible. Note that our recommendation is almost always going to be to get as much of the audit resolved at the auditor level. Sometimes a meeting with the auditor’s supervisor may be requested before finalizing. It’s also important to note that if it appears that the state won’t budge on an issue, the strategy may be to try to resolve it at the appeal level. Sometimes the route to go is settlement. How to engage in that process varies by state.

3. What Happens If Your Sales Tax Audit is Unsuccessful?

An unsuccessful sales tax audit can indeed lead to several significant consequences:

Financial Penalties: Businesses may be subject to fines or penalties for failing to comply with sales tax regulations. These penalties can vary depending on the severity of the non-compliance. If the audit process has been collegial, penalties can often be waived or lowered.
Interest Charges: In addition to penalties, businesses may also be required to pay interest on any unpaid taxes accrued during the audit process. Remember, interest is statutory, so even though sometimes penalties can be waived, there will always be an interest charge.
Additional Tax Assessments: If discrepancies are found during the audit, tax authorities may assess additional taxes owed by the business, or flag the company for future audits.
Reputational Damage: Public knowledge of an unsuccessful audit or legal action can damage the reputation of the business, potentially leading to loss of customers, partners, or investors.

Remember, there are various avenues of appeal, if you disagree with the outcome. And again, we’ll help you with that.

Click here to read our article on Navigating Sales Tax Penalties and Assessments.

Did you get that audit notice? Not quite sure how to handle it? The trick is proper preparation, thorough documentation, and responding promptly to audit findings.

Mostly though, don’t do it alone.

Book a consultation with Miles Consulting, drop us a line, or send us an email at info@milesconsultinggroup.com.

by Monika Miles

Navigating Sales Tax Penalties and Assessments

Are you currently involved in an audit? A little worried about the assessments that follow, and the penalties that could come up? That’s understandable – audits are a scary thing. Or have you received an unexpected bill or notice of a lien on your property? Let us help you analyze the reasons and resolve these matters.

So, what are sales tax penalties and assessments? We’ll unpack these matters here:

Sales Tax Penalties
- Fines and charges imposed for sales tax non-compliance, crucial for compliance and risk management.
Common Types of Sales Tax Penalties
- Late filing and underpayment penalties incurred for various non-compliance scenarios.
Understanding Tax Assessments
- Official determination of tax owed by a taxpayer, distinct from punitive charges. The difference between penalties and assessments.
Strategies for Disputing Tax Penalties
- Dispute resolution involves reviewing notices, gathering documentation, and exploring negotiation or appeals.

Can’t find what you’re looking for? Let’s talk. Reach out to us at info@milesconsultinggroup.com.

1. What Are Sales Tax Penalties?

Sales tax penalties are fines and charges imposed by state tax authorities due to non-compliance, by businesses, with sales tax regulations. It is crucial for organizations to comprehend and effectively manage these penalties to ensure future compliance and minimize potential risks to their operations.

2. Common Types of Sales Tax Penalties

Late Filing Penalties

When They Apply: As the name suggests, late filing penalties are incurred when businesses fail to submit their sales tax returns by the specified deadline. This deadline is set by the tax authority and varies depending on the jurisdiction. Failure to meet this deadline constitutes non-compliance with sales tax regulations and may trigger penalties. Note that most states require monthly or quarterly filings for sales tax returns. Typically, a return is due between the 15^th and 31^st day of the next month. If not filed timely, or for the correct amount, penalties can apply.
Calculation and Rates: The calculation of late filing penalties often involves a percentage-based approach applied to the unpaid tax amount. The specific rate varies across jurisdictions and may also depend on factors such as the duration of the delay. Typically, late filing penalties are in the range of 10-15%. But some states have a flat late fee, like Texas which charges $50 for a late return, even if no tax is due. Washington can charge penalties of 39% on some delinquent filings.

Underpayment Penalties

Causes of Underpayment Penalties: Underpayment penalties occur when businesses do not remit the full amount of sales tax owed to the tax authority. Several factors can contribute to underpayment, including calculation errors, failure to accurately track taxable sales, or misunderstanding of tax regulations. In some cases, businesses may unintentionally underpay due to changes in tax rates or exemptions. Sometimes we also see intentional underpayments when a company doesn’t have the funds available to pay on time. (The most “dangerous” scenario is where sales taxes have been collected, but not remitted. Sales taxes are, like payroll taxes, fiduciary in nature, and states take huge exception to taxpayers collecting and not remitting them!)
How They Are Determined: Underpayment penalties are typically determined based on the shortfall between the actual amount of sales tax owed and the amount paid by the business. The penalty calculation generally involves applying a predetermined rate to the underpaid amount for each period of non-compliance. Additionally, some jurisdictions may consider factors such as the taxpayer's compliance history or the presence of mitigating circumstances when determining the severity of underpayment penalties.

3. Understanding Tax Assessments

A tax assessment refers to the formal determination of the amount of tax owed by a taxpayer, conducted by tax authorities based on available information. It is essentially the calculation and establishment of the taxpayer's liability to the government for taxes owed. Tax assessments are crucial steps in the tax compliance process, providing a clear picture of the taxpayer's financial obligation to the authorities. Assessments are often generated as a result of an audit or other examination. However, we also see states levy what is called a jeopardy assessment. This happens when a state has sent several notices ignored by taxpayers and finally sends a bill – based on the state’s estimate of liability. In dealing with clients who have indeed been ignoring previous notices, we find that the jeopardy assessment does seem to get their attention! As an aside, we always recommend answering the notice before getting the jeopardy assessment. The next step is often a lien against a personal bank account.

Penalties and Assessments

Penalties and assessments are two different parts of an audit. Here's a breakdown:

Penalties: Penalties are punitive charges imposed by tax authorities as consequences for non-compliance with tax regulations. They are separate from the actual tax liability and serve as deterrents against behaviors such as late filing, underpayment, or failure to report taxes. Penalties are applied in addition to any taxes owed and are meant to encourage adherence to tax laws.
Assessments: Assessments, on the other hand, represent the state’s determination of the taxpayer's tax liability. They are based on various factors such as income, sales records, deductions, and credits. Assessments provide a quantified amount of taxes owed by the taxpayer and serve as the basis for tax collection efforts by the authorities. Unlike penalties, assessments directly reflect the taxpayer's financial obligation to the government and are integral to the tax compliance process. Note that assessments can be appealed at various levels of the audit process. See our recent article on Preparing for a Sales Tax Audit: Tips and Best Practices for Middle-Market Business Owner, for a little more on this.

4. Strategies for Disputing Tax Penalties

When a state taxing authority demands you pay up, there is hope to be found in this systematic response to penalties. We’ll help you complete these steps:

Reviewing the penalty notice:

Thoroughly examine the penalty notice provided by the tax authorities to understand the basis of the penalty and the specific regulations allegedly violated.
Identify any discrepancies or errors in the penalty assessment, such as incorrect calculation or misinterpretation of tax laws. Yes, states make mistakes too!

Gathering supporting documentation:

Collect relevant documents and records to substantiate your position, including sales records, financial statements, invoices, and correspondence with tax authorities.
Ensure that the documentation clearly demonstrates compliance with tax regulations or provides explanations for any discrepancies.

Effective communication with tax authorities:

Maintain open and constructive communication with tax authorities to address any misunderstandings or discrepancies regarding the penalty assessment. It’s key to respond as soon as possible.
Provide clear and concise explanations backed by evidence to support your case and facilitate resolution.

Exploring dispute resolution options:

Negotiation: Attempt to negotiate with tax authorities to reach a mutually acceptable resolution, such as reducing the penalty amount or agreeing on a payment plan.
Formal Appeals: If negotiation proves unsuccessful, consider filing a formal appeal with the appropriate tax appeals board or administrative tribunal. Miles can help.
Litigation as a Last Resort: As a last resort, pursue litigation through the judicial system to challenge the penalty assessment in court. This option should be considered only after exhausting all other dispute resolution avenues. Also, litigation is very expensive and doesn’t guarantee victory either. Try to resolve issues before contemplating litigation.

The best strategy is to not go it alone. Come to Miles – we assist clients with state sales tax audits, notices, assessments, jeopardy assessments, and penalties that may result. If you have assessments and penalties tied to your business’s tax affairs, we can help you understand them, and if need be, dispute them.

Did you get that audit notice this month? Not quite sure how to handle it? Book a consultation with Miles Consulting, drop us a line, or send us an email at info@milesconsultinggroup.com.

by Monika Miles

Preparing for a Sales Tax Voluntary Disclosure Program: Best Practices and Strategies

Voluntary disclosure programs stand as important points of resolution for businesses navigating potential sales tax and state income tax non-compliance issues. Understanding the nuances of these programs is crucial for enterprises seeking to rectify their tax affairs. In this article we’ll focus on voluntary disclosure agreements (known as “VDAs” in the state tax arena) as they relate mostly to sales tax and state income tax. Note that each state has its own process for engaging in these remedies and there is no “one-size fits all” although there are similarities among the programs.

We’ll cover some of those nuances here:

1. Understanding Voluntary Disclosure Programs:

2. Risks of Non-Compliance:

Overview:
Explore risks related to non-compliance, emphasizing proactive mitigation.
1. Audits and Investigations:
Non-compliance increases the risk of time-consuming audits as happens when a state identifies a company as non-compliant before the company is able to come forward voluntarily
2. Financial Penalties:
Non-compliance leads to financial penalties and interest.
3. Legal Actions:
Non-compliance may escalate to legal actions.
4. Reputational Damage:
Non-compliance can harm a business’s reputation.
5. Loss of Business Opportunities:
Non-compliance limits opportunities.
6. Unpredictable Financial Impact:
The financial impact of non-compliance is unpredictable.

3. Benefits of Participation:

Benefits include potential penalty reductions, limited lookback period (i.e.; shorter windows in which to calculate retroactive taxes) avoidance of legal actions, and reputation preservation, as well as being on the offense (rather than defense) with a state taxing authority. Another huge benefit is the ability to remain anonymous for a period of time (in most states) while the company compiles its supporting documentation.

4. Steps for Effective Preparation:

Initial Steps:
Recognizing potential tax liabilities and understanding non-compliance.
Risk Evaluation:
Assessing the likelihood of tax authorities detecting non-compliance and preparing internal estimates of the potential retroactive sales tax and income tax exposure.
Document Compilation:
Collecting relevant documents to support the disclosure process.
Organization:
Efficient organization of collected documents for streamlined disclosure.
Internal Audits:
Thorough internal audits to identify potential issues.
Gaps and Inconsistencies:
Identifying gaps or inconsistencies for proactive resolution.
Timeline Establishment:
Developing a realistic timeline for voluntary disclosure.

Still not what you need? No problem – let’s talk. Reach out to us at info@milesconsultinggroup.com.

1. Understanding Voluntary Disclosure Programs

Voluntary disclosure programs are initiatives offered by state taxing authorities to allow businesses to come forward voluntarily and rectify certain tax liabilities or non-compliance issues. The primary purpose is to encourage businesses to disclose errors or omissions willingly while receiving limited lookback periods and reduced penalties.

Fundamentally, engaging in a voluntary disclosure program means you are on the offense and not the defense – you as taxpayer are being proactive.

But how does a company even evaluate when to use a VDA program? As discussed more fully below, a company might realize after internal analysis or discussion with a consultant that it had the obligation to collect and remit sales tax. Likely this is a result of having created either physical presence or economic nexus in a state. Such exposure in prior years must be rectified with a state before the company can properly register and move forward with current sales tax collection and compliance. As such, companies often decide to come forward (often anonymously at first) and agree to reduced years of liability reporting and waiver of most penalties, among other things. We find that VDAs are a very good way for companies to come forward and handle retroactive exposure. It’s part of what we help clients with every day! (So, if this is something your company is considering, you’re in good company!) Contact us for more information and assistance now at info@milesconsultinggroup.com.

2. Risks Associated with Non-Compliance

Non-compliance with tax regulations exposes businesses to a spectrum of inherent risks, each with potential consequences that can adversely impact their financial stability and reputation. Recognizing and understanding these risks is crucial for businesses to appreciate the significance of proactive participation in voluntary disclosure programs. The key risks associated with non-compliance include:

Audits and Investigations: Failure to comply with tax regulations increases the likelihood of audits and investigations by tax authorities. These processes can be time-consuming, disruptive, and resource-intensive for businesses. Audits may uncover discrepancies, leading to additional tax assessments, interest charges, and potential penalties. Proactively addressing non-compliance through voluntary disclosure programs can mitigate the risk of intensive audits.
Financial Penalties: Non-compliance often results in the imposition of penalties and interest, which can significantly impact a business’s bottom line. These penalties may be calculated based on the severity and duration of non-compliance. Participating in voluntary disclosure programs offers businesses the opportunity to potentially reduce or eliminate these penalties, demonstrating a commitment to rectifying issues and fostering cooperation with tax authorities. How much are we talking about? We generally recommend that clients use a ballpark of between 25-30% to cover interest and penalties that might be due in a retroactive lookback situation. So, it can definitely be significant.
Legal Actions: Non-compliance can escalate to legal actions, including litigation and prosecution. Tax authorities may pursue legal avenues to enforce compliance, leading to additional costs and potential damage to a business’s reputation. Voluntary disclosure programs provide an alternative route for businesses to address non-compliance without resorting to legal actions, fostering a cooperative approach and avoiding the associated risks.
Reputational Damage: Non-compliance can have severe consequences for a business’s reputation. Negative publicity, damage to customer trust, and strained relationships with suppliers and partners can result from public knowledge of tax-related issues. Proactive participation in voluntary disclosure programs allows businesses to rectify non-compliance discreetly, minimizing reputational damage and preserving trust within the business community.
Loss of Business Opportunities: Businesses that are non-compliant with tax regulations may face limitations in securing contracts, partnerships, or financing opportunities. Many stakeholders, including customers and investors, prioritize working with businesses that demonstrate a commitment to ethical practices and compliance. Voluntary disclosure programs offer a pathway for businesses to rectify non-compliance, enhancing their eligibility for various business opportunities.
Unpredictable Financial Impact: The financial impact of non-compliance can be unpredictable, with potential consequences ranging from unexpected tax liabilities and related interest and penalties to unplanned expenses related to audits and legal proceedings. Voluntary disclosure programs provide businesses with the opportunity to gain control over their financial destiny by proactively addressing non-compliance, allowing for better financial planning and risk management.

For more on sales tax compliance, click here.

3. Benefits of Participating in Voluntary Disclosure Programs

Participating in voluntary disclosure programs provides businesses with a range of valuable benefits, creating a proactive and mutually beneficial approach to resolving tax-related issues. These programs, often offered by tax authorities, aim to encourage businesses to come forward voluntarily to address any potential non-compliance. The advantages of participating in such programs include:

Potential Penalty Reductions: One of the primary benefits is the potential for significant reductions in penalties. Tax authorities recognize that businesses voluntarily disclosing errors or omissions are demonstrating a commitment to rectifying compliance issues. As a result, participating businesses may receive favorable treatment, including reduced or waived penalties compared to those imposed in cases of non-disclosure.
Avoidance of Legal Actions: Voluntary disclosure programs provide businesses with an avenue to rectify compliance issues without facing severe legal consequences. By voluntarily coming forward and addressing potential tax liabilities, businesses can avoid or mitigate the risk of legal actions, audits, or investigations that may arise if non-compliance is discovered through other means. This approach fosters a cooperative relationship between businesses and tax authorities.
Opportunity to Rectify Errors Proactively: Participating in these programs offers businesses the opportunity to rectify errors in a controlled manner. Rather than waiting for potential audits or investigations, businesses can voluntarily disclose inaccuracies, omissions, or past oversights. This proactive stance allows for the implementation of corrective measures, demonstrating the business’s commitment to compliance and ethical business practices.
Preservation of Reputation: Maintaining a positive reputation is crucial for businesses, and voluntary disclosure programs provide a means to address compliance issues discreetly. By voluntarily addressing and rectifying potential tax liabilities, businesses can preserve their reputation in the business community and among customers, suppliers, and other stakeholders. This transparency and commitment to compliance contribute to building trust and credibility.
Clarity on Tax Liabilities: Participating in voluntary disclosure programs provides businesses with clarity on their tax liabilities. Through open communication with tax authorities, businesses can gain a better understanding of their tax obligations and work collaboratively to resolve any uncertainties. This clarity enables businesses to plan and budget effectively, reducing the risk of future compliance issues.
Potential for Extended Payment Plans: In some cases, voluntary disclosure programs may offer businesses the flexibility of extended payment plans for outstanding tax liabilities. This can be particularly beneficial for businesses facing financial constraints, allowing them to fulfill their obligations over a structured timeframe without compromising their operational viability. Note that each state varies in these types of payment plans, and many are not guaranteed.

4. Steps for Effective Preparation

Back to the crux of the matter – once you’ve initiated the voluntary disclosure program, these are the steps that need to be taken, for the process to be fast and beneficial:

Recognizing Potential Tax Liabilities
Begin the preparation process by identifying potential tax liabilities, examining previous filings, and understanding any areas of non-compliance. This is often accomplished by performing a nexus and taxability review, which also includes exposure analysis. From this, a company can determine when its obligations to collect and remit sales tax starts, how much money is at stake and what the specific benefits of a VDA in each state would be.
Assessing the Risk of Detection
Evaluate the likelihood of tax authorities detecting non-compliance, considering factors such as industry norms, regulatory changes, and audit triggers. Clients often ask us “how likely am I to be audited?” or “what are the triggers?” There are many items to consider (and we can chat about those), but it’s important to note that states are fairly aggressive in determining non-compliance. And once a state reaches out with a notice or nexus questionnaire, then VDAs are almost always off the table and a company can no longer obtain the benefits mentioned above. Timing is very much of the essence in voluntary disclosure.
Types of Documents to Collect
Compile relevant documents, including financial records, transaction details, and tax filings, to support the disclosure process. This may include reaching out to customers to determine if they have self-assessed tax previously. Or if they have exemptions or resale certificates that the selling company did not timely collect but may now be able to. (Note that there are some nuanced processes here that we are happy to discuss in more detail.) This process is often referred to as an “XYZ letter” process.
Organizing and Categorizing the Documents
Efficiently organize and categorize the collected documents to streamline the disclosure process and enhance clarity.
Conducting Internal Audits
Conduct thorough internal audits to identify potential issues, ensuring a comprehensive understanding of the scope of non-compliance.
Identifying Gaps and Inconsistencies
Scrutinize the collected information to pinpoint any gaps or inconsistencies, addressing them proactively during the disclosure process.
Establishing a Timeline for Disclosure
Develop a realistic timeline for the voluntary disclosure, considering internal capabilities, regulatory deadlines, and the need for thorough preparation. Once companies decide to go down this route of disclosure, they often want to start right away. It’s important to note that the process can take 2-3 months to complete. And sometimes longer, depending on the backlog of a particular state.

When you choose to work with Miles Consulting Group, you choose a speedy, experienced and professional handling of all of the above steps. You’ll work closely with one of our knowledgeable consultants, and you’ll get anonymity as long as possible.

Come to Miles today.

by Monika Miles

The Role of Technology in Streamlining Ecommerce Sales Tax Compliance

It has been over 5 years since the pivotal ruling essentially creating the concept of “economic nexus” thresholds in South Dakota v. Wayfair (US Sup Ct – 2018). And yet, we still field questions from e-commerce companies daily about how to navigate compliance. Ecommerce businesses operate in a complex landscape where sales tax compliance is of paramount importance. Compliance is not merely a legal obligation; it is a critical component of financial stewardship. Failing to comply with sales tax regulations can lead to financial penalties, audits, and a negative impact on the business's reputation.

As ecommerce transactions cross state and international boundaries, understanding and adhering to the various tax laws and rates remains a formidable challenge.

This article explores the significance of sales tax compliance for ecommerce businesses and how both technology and the human element of a consultant play a pivotal role in simplifying this intricate process.

Here’s what we’ll be covering:

Challenges Faced by Ecommerce Businesses in Sales Tax Compliance
- Specific challenges in sales tax compliance:
  - Varied Tax Jurisdictions: Navigating different tax rules in various locations.
  - Tax Rate Determination: The complexity of calculating accurate tax rates.
  - Handling Exemptions: Managing exemptions for certain products or transactions.
  - Evolving Regulations: Adapting to changing tax laws.
  - Borderless Commerce: Coping with the complexity of cross-border transactions.
  - Accurate Calculation, Filing, and Record-Keeping: Ensuring precision in tax-related tasks.
  - Non-Compliance Consequences: Consequences of failing to comply with tax regulations.
The Evolution of Sales Tax Software for Ecommerce
- The evolution of sales tax compliance methods:
  - Traditional Sales Tax Compliance Methods: Manual and spreadsheet-based approaches.
  - Introduction of Sales Tax Software Solutions: Automation of the compliance process.
  - Advantages of Using Sales Tax Software for Ecommerce: Benefits of using software solutions.
Key Features of Sales Tax Software for Ecommerce
- Essential features of sales tax software:
  - Tax Calculation Software: Automates precise tax calculations for each transaction.
  - Tax Filing Software: Streamlines the submission of tax returns.
  - Tax Management Platforms: Centralized hubs for monitoring compliance.
Beyond the Software: The Role of Consulting in Sales Tax Compliance
- The importance of consulting in sales tax compliance:
  - Importance of Expertise in Tax-related Challenges: Expertise in complex tax laws.
  - How Consulting Can Complement Sales Tax Software: Combining expertise with automation.
The Human Touch Before Technology
- Emphasizes the role of a knowledgeable consultant before implementing automation solutions in tax compliance.

Can’t find the answer you need? Reach out to us at info@milesconsultinggroup.com.

1. Challenges Faced by Ecommerce Businesses in Sales Tax Compliance

Ecommerce businesses face several tough challenges when it comes to following sales tax rules:

Varied Tax Jurisdictions

Ecommerce businesses often find themselves navigating through a number of different tax jurisdictions. Sales tax regulations can vary widely from one state to another, each with its own rules, exemptions, and rates. This diversity complicates the process of understanding and adhering to the tax laws relevant to their operations. Additionally, states within the U.S. have differing economic nexus thresholds for sales tax collection, which further muddies the waters.

Tax Rate Determination

Determining the correct tax rate for each transaction is no small feat. Many jurisdictions layer rates to include state, city, county, and even special assessments for transportation or infrastructure, so a composite sales tax rate is often between 8-10% across the US. Furthermore, tax rates are subject to change, and keeping up with these alterations can be a formidable task. Failure to calculate the appropriate tax rate accurately can result in undercharging or overcharging customers, leading to potential financial and legal repercussions. While the differences might seem small at first, errors can add up quickly for growing companies.

Handling Exemptions

Many tax jurisdictions offer exemptions for certain types of products, industries, or transactions. Ecommerce businesses must navigate the complex landscape of exemptions to ensure they are not overcharging customers when these exemptions apply. Managing exemptions requires an intricate understanding of the specific criteria and documentation needed to qualify for them. Common exemptions include sales for resale, sales of products of a specific nature, like food or medical products, or the nature of the buyer of products (like governments, non-profit organizations, etc.) While “common”, exemptions do vary state by state, so it’s important to note that just because something may be exempt in one state, it’s not necessarily exempt in another.

Evolving Regulations

Tax regulations are not static. They are in a constant state of flux, adapting to economic changes, political decisions, and technological advancements. Staying current with evolving sales tax regulations is an ongoing challenge. Ecommerce businesses must dedicate resources to monitor changes and adapt their systems and processes accordingly to avoid compliance gaps.

Borderless Commerce

Ecommerce's borderless nature introduces a layer of complexity. Businesses often operate across state and international boundaries, making it challenging to pinpoint the jurisdiction where a transaction occurs. The need to understand the tax laws of multiple regions adds an additional layer of complexity to the compliance process. In our practice, we are dealing with a growing number of foreign companies doing business in the US (and being subject to the economic nexus rules based on their sales volume). Think this is confusing for US based entities? Try explaining our American philosophy of state sovereignty across all 50 states to someone from another country!

Accurate Calculation, Filing, and Record-Keeping

Accurate tax calculation is a fundamental requirement, but so is the precise filing of tax returns. Filing errors and frequent amendments to filed returns can lead to audits and penalties. Additionally, maintaining meticulous records of all transactions and tax-related documents is a demanding task but is essential for audit preparedness and compliance.

Non-Compliance Consequences

Non-compliance with sales tax regulations can have dire consequences for ecommerce businesses. This includes penalties, audits, possible legal disputes with customers, and a tarnished reputation that can deter customers and partners. The financial repercussions of non-compliance can be significant and potentially threaten the viability of a business. We often pose the question “Could you afford to be in error up to 9 or 10% of your top line revenue?” “What if you had to come out of pocket for retroactive taxes at those percentages?”

2. The Evolution of Sales Tax Software for Ecommerce

Traditional Sales Tax Compliance Methods

In the past, ecommerce businesses primarily relied on manual methods and spreadsheet-based systems to handle their sales tax compliance. These traditional approaches were labor-intensive and often error-prone. They also struggled to keep pace with the constant changes and complexities of tax regulations. Manual compliance was particularly challenging for businesses experiencing growth, as it demanded more resources and time as their customer base expanded and their operations diversified.

Introduction of Sales Tax Software Solutions

The introduction of sales tax software solutions many years ago marked a significant turning point in the world of sales tax compliance for ecommerce. These specialized software applications were purpose-built to automate the entire sales tax process, covering tasks such as front end bolt-ons to accounting systems for real time tax calculation, tracking of tax collection, and ultimately remittance. They were specifically tailored to address the unique needs of online businesses and aimed to simplify the compliance journey.

Advantages of Using Sales Tax Software for Ecommerce

Sales tax software offers a multitude of advantages for ecommerce businesses. It plays a pivotal role in eliminating the risks associated with human errors in tax calculations, streamlines the often complex filing process, and ensures that businesses remain in real-time compliance with the ever-changing landscape of tax rates and regulations. These software solutions are highly adaptable and can seamlessly integrate with various ecommerce platforms. By doing so, they deliver not only cost and time savings but also a substantial improvement in accuracy and efficiency in managing sales tax. This section will delve into the numerous benefits that ecommerce businesses enjoy when they adopt sales tax software solutions.

3. Key Features of Sales Tax Software for Ecommerce

When it comes to sales tax compliance for ecommerce, sales tax software offers a range of indispensable features tailored to simplify the complex process. Let's take a closer look at the specific features that make sales tax software a valuable asset for online businesses.

Tax Calculation Software

At the heart of sales tax compliance lies the tax calculation software at the beginning of the sales transaction process. This essential tool automatically computes the appropriate sales tax for every single transaction. It takes into account various factors like the transaction's location, the type of product, and any applicable exemptions. By handling these calculations automatically, this feature ensures that sales tax is collected with pinpoint accuracy, significantly reducing the risk of errors and non-compliance. Human touch: Mapping revenue correctly to the software’s taxability codes is key in this process, and a human eye here is critical to the ongoing success of the sales tax collection process.

Tax Filing Software

Tax filing is a critical component of sales tax compliance, and tax filing software is here to streamline this often intricate process. It simplifies the task of submitting sales tax returns to tax authorities. This software generates tax returns, reports and supporting documentation, making it easier for businesses to meet their filing requirements. Human touch: As we assist our clients, we work with software companies all the time and they are all relatively accurate and fast. But sometimes transactions occur that are outside the norm, and it is helpful to view these with a human eye so as not to make errors which might not count, or double count transactions, for instance.

Tax Management Platforms

Tax management platforms provide ecommerce businesses with a centralized hub to monitor and oversee their sales tax and other compliance (such as VAT for example, or exemption certificate retention). These platforms offer real-time updates on shifting tax rates and regulations, ensuring businesses are always in step with the latest requirements for their needs. They also facilitate the tracking of transactions and exemptions, offering a comprehensive view of an ecommerce business's tax compliance landscape.

4. Beyond the Software: The Role of Consulting in Sales Tax Compliance

While sales tax software is undeniably valuable, as discussed above tax consultants bring a depth of expertise and a personalized approach that is equally crucial.

Importance of Expertise in Tax-related Challenges

Sales tax compliance involves more than just numbers and calculations; it demands a comprehensive understanding of intricate tax laws, regulations, and the specific challenges that pertain to individual businesses, particularly for revenue streams that might be more unusual, or bundled. Tax consultants possess this invaluable expertise. They can provide insights, guidance, and solutions for complex tax situations, ensuring that businesses remain on the right side of the law.

How Consulting Can Complement Sales Tax Software

While sales tax software automates and streamlines many aspects of compliance, its effectiveness is amplified when coupled with consulting services. Knowledgeable consultants complement the digital precision of software, creating a holistic approach to compliance.

Consultants can assist in strategic planning, helping businesses make informed decisions regarding their tax obligations. They can also prepare businesses for potential audits, ensuring that all necessary documentation and processes are in place. Furthermore, consultants excel at addressing unique and challenging tax scenarios, offering tailored solutions that software alone may not accommodate.

5. The Human Touch Before Technology

In matters of ecommerce tax compliance, ‘the human touch’ is vital.

First and foremost, it is essential to engage a knowledgeable consultant to assess your specific circumstances before you explore automation solutions. The consultant's role is to evaluate your situation, identifying the tax obligations in various states and pinpointing any areas where non-compliance may need to be addressed. This evaluation may encompass aspects like nexus requirements, taxability, exemptions, and even the determination of which states mandate registration. Only after this thorough assessment of your tax situation is completed should you consider integrating technology into other facets of your ecommerce operations.

At Miles Consulting, providing this expert human touch is at the core of our services for our clients.

Click here to find out more.

by Monika Miles

Navigating Sales Tax Audits with the Help of Sales Tax Consultants

Facing an audit can be a daunting experience, and it's important to understand that audits can happen for various reasons. And while that fact doesn’t do much to relieve the stress and apprehension that often comes with it, it's crucial to be aware of why you might be audited. Because it's not just about tax compliance; there are numerous triggers for an audit that you may not anticipate, and failing to handle the audit correctly can lead to risks and potential financial consequences. And there’s that anxiety again.

Don’t stress, though - Miles Consulting will play a vital role in navigating the audit process with you. Miles specializes in managing the auditor's questions, mitigating potential issues, and even finding opportunities for refunds. So, you’ll never have to go at it alone. In our experience, handling an audit yourself is rarely the best approach. Involving us will make a significant difference in the outcome of the audit.

For more on the mechanics of a self-audit, read the second post in our sales and use tax audit series, here.

Additionally, it's wise to consult with a professional before speaking with the auditor directly. Why? Sometimes, in an attempt to be cooperative, individuals may provide more information than necessary, potentially harming their own case. Remember, volunteering excessive information during an audit may prove detrimental. It's essential to strike a balance between cooperation and safeguarding your own interests in the process.

Wait! Have you received an audit notice? Feeling a bit anxious about it? Stop here (or read on) and contact us at info@milesconsultinggroup.com to schedule a consultation!

Let’s get into the complexities of navigating sales tax audits with sales tax consultants as your trusted ally. In this article, we’ll be covering the following:

Why Sales Tax Audits Occur
- Section describing the triggers for sales tax audits, including discrepancies in financial reporting, inadequate record-keeping, unusual transaction patterns, and industry benchmarking.
- Section outlining common concerns during sales tax audits, such as penalties and fines, repayment of unpaid taxes, reputation damage, operational disruption, and legal ramifications.
Upfront Preparation – Where are Your ‘Skeletons’?
- Section discussing the importance of comprehensive upfront preparation for an impending audit, including reviewing financial records, transactions, and tax documentation to identify potential issues.
- Emphasis on the benefits of upfront preparation in addressing compliance issues and minimizing the risk of penalties, fines, and reputational damage.
Curtailing Anxiety and Managing Risks
- Section highlighting the role of sales tax consultants in helping businesses manage the stress and risks associated with audits.
- Discusses expert guidance, audit preparedness, risk mitigation, stress reduction, and reputation management provided by consultants.
Miles' Role in Navigating Questions and Finding Refunds
- Section describing the role of Miles Consulting as sales tax consultants in handling auditor questions and uncovering refund opportunities for businesses.
- Emphasizes minimizing tax liability, ensuring compliance, building confidence and trust, and contributing to strategic planning.

Not what you need? Reach out to us at info@milesconsultinggroup.com.

1. Why Sales Tax Audits Occur

Sales tax audits can be triggered by various factors, often stemming from irregularities in financial records and tax documentation. Here are the primary triggers and common concerns that lead to sales tax audits.

Triggers for Sales Tax Audits

Sales tax audits are typically initiated for the following reasons:

Discrepancies in Financial Reporting: One of the most common triggers for a sales tax audit is when the government authorities notice inconsistencies in a business's financial reporting. This can include variances between reported sales figures and the corresponding tax payments. Discrepancies may result from errors, omissions, or deliberate attempts to underreport sales to reduce tax liability.
Inadequate Record-Keeping: Poor record-keeping practices can also raise red flags. When a business fails to maintain accurate and complete financial records, it becomes challenging for tax authorities to verify the accuracy of reported sales and corresponding tax payments. This lack of transparency can trigger an audit.
Unusual Transaction Patterns: Irregular or suspicious transaction patterns, such as frequent refunds, excessive voids, or unexplained fluctuations in sales, can lead to increased scrutiny from tax authorities. These patterns may indicate potential tax evasion or fraud.
Industry Benchmarking: Tax authorities often compare a business's performance to industry benchmarks. If a company's reported figures significantly deviate from the norm for its sector, it may attract attention and prompt an audit.
An audit of a customer leads a state taxing authority to discover out of state vendors who are not registered in the state. This often triggers a nexus questionnaire – the precursor to an official audit.

Common Concerns During Sales Tax Audits

When undergoing a sales tax audit, businesses commonly face the following concerns:

Penalties and Fines: Non-compliance with sales tax regulations can result in penalties and fines. These financial consequences can be substantial and may negatively impact a company's profitability.
Repayment of Unpaid Taxes: If the audit reveals that a business underreported its sales and therefore underpaid taxes, the company will be required to make up the shortfall. This can be a significant financial burden, especially if the underreporting has occurred over an extended period.
Reputation Damage: Public knowledge of a sales tax audit can damage a company's reputation. Customers and business partners may lose trust in the organization, affecting long-term relationships and profitability.
Operational Disruption: The audit process can be time-consuming and disruptive to a business's normal operations. Employees may need to divert their attention from their regular tasks to assist with the audit, potentially affecting productivity.
Legal Ramifications: In cases of severe tax evasion or fraud, businesses and their responsible individuals may face legal action, which can lead to fines, imprisonment, or other legal consequences.

2. Upfront Preparation – Where are Your ‘Skeletons’?

If you’ve received a notice from a state taxing authority, and as you approach an impending audit, it becomes imperative to undertake comprehensive upfront preparation. This proactive step entails a meticulous examination of your financial history to uncover any potential "skeletons in the closet" – those hidden issues and areas of concern that could draw the auditor's attention during the upcoming audit.

In essence, this preparatory process involves a careful review of your financial records, transactions, and tax documentation to identify any irregularities, discrepancies, or potential compliance issues. By doing so, you can better position your business to address and rectify these concerns before they become significant obstacles during the audit.

Upfront preparation not only helps in the early detection of potential issues but also facilitates a smoother, more efficient audit process. It allows you to take corrective actions, ensuring that your financial affairs are in order and compliant with tax regulations. Furthermore, this proactive approach minimizes the risk of penalties, fines, and reputational damage, ultimately contributing to a more secure and legally sound business operation.

Unfortunately, oftentimes businesses don’t really know where the skeletons are! That’s why a review by a sales tax specialist before the audit starts can be critical.

For more on how to undergo pre-audit preparation, read the 3^rd post in our sales and use tax audit series, here.

3. Curtailing Anxiety and Managing Risks

Back to the natural stress of the matter.

Audits can cause much worry - mishandling them can have serious consequences. In this challenging landscape, consultants specializing in audit support play a pivotal role in helping businesses maintain their composure and minimize risks.

Expert Guidance: Consultants bring a wealth of knowledge and experience to the table. They are well-versed in the intricacies of the auditing process, enabling them to offer precise guidance to businesses. This guidance encompasses understanding audit procedures, compliance requirements, and strategies to address audit concerns effectively.
Audit Preparedness: Consultants work closely with businesses to ensure they are fully prepared for an audit. They assist in organizing financial records, ensuring they are complete and accurate. This upfront preparation helps in minimizing the chances of the audit process unveiling any compliance issues or irregularities.
Risk Mitigation: By identifying potential areas of concern and compliance issues in advance, consultants enable businesses to take corrective actions. This proactive approach significantly reduces the risk of penalties and fines. Consultants help businesses navigate the audit process with confidence, making it less intimidating.
Stress Reduction: The expertise and support provided by consultants alleviate much of the stress associated with audits. Their presence reassures businesses that they have a knowledgeable ally who can help them handle audit-related challenges.
Reputation Management: Consultants also play a crucial role in managing a business's reputation during an audit. They assist in maintaining transparency and ensuring that the audit process is conducted professionally. This helps businesses avoid negative public perception and maintain the trust of their customers and stakeholders.

4. Miles' Role in Navigating Questions and Finding Refunds

When it comes to the intricate world of sales tax and the challenging terrain of audits, businesses often find themselves in need of an experienced guide and ally, and that's where we, as seasoned sales tax consultants, shine. We bring a wealth of expertise and experience to the table, offering invaluable assistance to businesses facing the scrutiny of auditors. Let's take a closer look at our role and the profound impact of our services.

Expertly Handling Auditor Questions: Auditors are thorough and inquisitive by nature, meticulously examining a business's financial records, transactions, and tax documentation. Businesses turn to us for guidance when they encounter auditor inquiries. Our deep understanding of tax laws ensures that responses to these inquiries are accurate, complete, and in full compliance with regulatory requirements. This not only helps businesses respond confidently to auditors but also minimizes the risk of compliance issues arising from inadequate responses.
Uncovering Refund Opportunities: Businesses often overpay or make errors in remitting sales tax due to the complexities of tax regulations. We specialize in identifying potential refund opportunities. Through a meticulous examination of financial records, we pinpoint areas where a business may have overpaid or made errors in their tax payments. Uncovering these refund possibilities can significantly bolster a business's financial health by recouping overpaid taxes and ensuring that future payments are more precise and cost-effective. Remember that an auditor is less likely to focus or spend time on a refund opportunity. However, an audit does provide an opportunity to find offsets to liabilities or net refunds.
Minimizing Tax Liability: We are not just about looking backward; we are also forward-thinking. We work closely with businesses to devise proactive strategies aimed at reducing future tax liabilities. By optimizing tax planning, identifying exemptions and credits, and ensuring compliance, we help businesses operate more efficiently, minimize their tax burden, and save money over the long term.
Ensuring Compliance: Compliance with sales tax regulations is not optional; it's a legal imperative. We assist businesses in adhering to tax laws, ensuring that they follow every requirement to the letter. By helping businesses stay on the right side of the law, we mitigate the risk of penalties and legal repercussions, safeguarding a business's reputation and financial stability.
Building Confidence and Trust: Audits can be stressful and intimidating, but with us as ally, businesses gain a sense of confidence and trust. Our expertise and guidance reassure businesses that their financial affairs are in capable hands. This not only reduces the anxiety associated with audits but also fosters a sense of trust that every aspect of the audit process is being handled with precision and accuracy.
Strategic Planning: Our insights and recommendations go beyond audit support. We actively contribute to a business's strategic planning by offering guidance on tax-efficient business operations. Our input helps businesses make informed decisions, aligning their financial operations with tax regulations and long-term business goals.

During an audit, it's important to remember that the auditor's primary goal is to identify and assess your tax liability. Every question they ask is designed to lead to a financial assessment, with the ultimate aim of collecting money owed to the government. Conversely, our role as your sales tax consultant is to be the buffer between you, the taxpayer, and the auditor, in order to safeguard your interests, and protect you financially.

Like we said, this certainly shouldn’t be a do-it-yourself affair. And volunteering too much may prove detrimental. If you're currently undergoing a sales tax audit, don't hesitate to contact us for assistance in navigating the complexities. It’ll lead to a smoother and more successful audit outcome. Your peace of mind and financial well-being are our priorities.

Reach out to us at info@milesconsultinggroup.com.

by Monika Miles