What is sales tax compliance? What should I do?

What is sales tax compliance? What should I do?

We are often asked, "How do I do sales tax?" . In reality, it's a question of "How do I stay sales tax compliant?"

Simply put, sales tax compliance is all about - preparing and filing sales tax returns. Once a taxpayer registers for a sales tax permit in a taxing jurisdiction, they must file and pay the tax on time.

We have broken down sales tax compliance into 7 steps, see below for a brief explanation.

1. Collecting Data

To properly file your sales tax return, you will need to collect data from multiple sources within your company. In the case of larger companies, this requires the cooperation of multiple departments such as purchasing, sales, legal, corporate management and operations. Sales tax data is generated in different financial processes; they may be in sales journals, accounts payable journals, fixed asset ledgers, etc.

2. Evaluate and reconcile data

Collecting data from various departments may make it difficult to evaluate and review the data. Consolidating reports and data can be done using tools such as Microsoft Access, Microsoft Excel, etc. to simplify this process. Items to check when reconciling data include

  • Sales tax levied
  • Accumulated use tax
  • Taxes collected and taxes payable

3. Complete the tax return

After collecting all the necessary data, it is time to enter the information into the tax form. It is a good idea to familiarize yourself with what is required on the return and how it is displayed before filling it out.

Tax forms vary from state to state, with some states requiring sales data to be reported on separate forms from purchase data, and others reporting on different lines in one return. Other differences include rent/lease, telecommunications, and other special taxes.

4. File tax returns and pay taxes

Once you have prepared your tax return, it is important to file and pay your taxes in a timely manner. The IRS will inform you of the frequency and deadlines for filing your return. The deadline applies to the filing of the return and the payment of the tax, which is usually one month after the taxable event. Deadlines vary from place to place. Common deadlines are the 15th, 20th, 25th and end of each month. deadlines for EFT (electronic funds transfer) and check payers may vary.

5. Bank Reconciliation/Confirmation of Payment

After submitting your tax payment, you should confirm that the payment has been received and processed by the state tax office. You should also prepare a bank statement to confirm that the correct amount has cleared.

6. Update your calendar

Best practice is to create a "tax calendar" spreadsheet to track important filing information such as due dates, taxes due, filers, filing methods, filing dates, filing and payment confirmation numbers, etc.

Once you have prepared your tax calendar, be sure to update it after each tax return is filed. This will make it easier to backtrack or confirm that taxes have been filed and remitted.

7. Respond to tax notices

When an error occurs, the tax authorities will send a notice. Many notices require a very short response time and require immediate attention. When responding to a notice, all documents must be provided to the IRS together. After a response is sent, it should be followed up until it is determined that the issue has been resolved.

Sales tax compliance is an ongoing process. The above 7 steps are repeated over and over and can be adjusted as needed. We hope this article helps answer your questions regarding sales tax compliance.