It’s officially autumn. Kids are back in school, NFL is on the TV, and pumpkins are ripening on the vine. That means it’s time for a favorite Q4 tradition: year-end planning with your CPA.
Like it or not, the fourth quarter is all about evaluation and preparation. Businesses should review the year to date, reassess goals, and prepare for the coming year. Accountants can be indispensable assets during this time.
But fall is also a busy time, so let’s keep this short and to the point.
What have you been up to in 2015? Knowing this will inform what needs to happen in preparation for success in 2016.
- New markets. Did you expand into new markets during 2015? If so, understanding how those markets deal with nexus (the connection between a state and business that triggers a tax obligation) is essential. For example: an FBA (Fulfillment by Amazon) seller with products stored in Amazon fulfillment centers could unwittingly have nexus in multiple states. The more you succeed, the more vigilance is required.
- New products. Do you have new inventory? New products often mean new suppliers, manufacturers, and/or distributors, each of which can necessitate new reseller and exemption forms, new filing requirements, and in some cases, new tax policies.
- New methods. Have you changed the way you do business? For example, have you changed carriers or incorporated a new method, such as drop shipping? Drop shipping can easily trigger tax obligations where you least suspect. The fact that states handle drop shipping differently compounds complexity. Watch and learn.
In addition to monitoring activity within your business, you must be alert to external changes that could affect sales tax and filing requirements. These can originate at the federal level or in states and communities. They can be relatively straightforward — like a state sales tax rate change — or complex, like the application of sales and use tax to ecommerce and digital goods and services.
- New nexus. It’s hard to keep up with nexus changes at the state level. This year, for example, Washington State, Michigan and Nevada created new nexus laws and New Jersey clarified that delivering goods in a seller’s vehicle triggers nexus. Looking ahead to 2016, South Carolina is expected to collect sales tax from Amazon sellers and Vermont is preparing to implement its click-through nexus law (which it will do as soon as it’s sure that at least 15 other states have its back). Keep abreast of your current obligations and an eye out for change.
- New exemptions. Exemptions can change at any time, at all levels of government — federal, state and local. For example: the Internet Tax Freedom Act (ITFA) seems forever on the brink of expiration, California is reducing many partial exemptions in 2016, and the senior sales tax exemption in Juneau, Alaska, will be scaled back at the start of the new year. There is also a growing trend among states to tax many services that are currently exempt. Staying on top of potentially relevant changes is challenging but well worth the effort.
- New interpretations. Legislation is created and repealed, but it can also be interpreted and amended. In 2014, Maine Revenue Services reminded that the definition of (taxable) tangible personal property in Maine had been amended to include “any product transferred electronically,” such as reading material and music. The Virginia Tax Commissioner recently determined that sales documentation must prove tangible forms of software were not delivered to customers or sales tax would apply to digital goods and related services. Businesses involved with digital goods and services need to be ever on the lookout for changing policies: the stance of many states is still unclear, but there is a global trend to tax digital content.
You’ve assessed 2015 achievements and set 2016 goals. You’re alert to real and potential fiscal, legislative, and tax changes. Now you need a plan.
- New strategies. There is much that you can control in your business but legislative and policy changes are out of your hands. 2016 may be the year in which federal lawmakers finally enact a remote sales tax law, or the United States Supreme Court delves into the issue. Develop and enact strategies to help your business implement new nexus laws, new cloud tax policies, and similar changes. Learn more about ecommerce and sales tax legislation.
- New processes. Businesses that sell multiple products to multiple markets should implement processes that will facilitate growth while simplifying compliance. See how sales tax automation and compliance software works.
- New plan. Forget manual tax compliance. Discover Avalara.
You’re busy — your plate is full. Right now, carving out time for year-end planning may not seem worth the trouble. But it is. Ask your accountant about ways to simplify tax compliance, and begin 2016 with confidence.