Sales tax records: What do you need to keep?
You’ve got plenty of things to keep track of in your business: revenue, expenses, inventory, to name just a few. In reality, your list probably includes a lot more than that. And, while it feels like the list doesn’t need to get any longer, your sales tax records should be on it, too.
As with most sales tax obligations, if your business sells through physical locations only, you’ll have an easier time of this than online businesses that might sell to customers in all 50 states. Regardless, keeping good records will help you avoid (or at least be prepared for) issues — including the dreaded audit.
What records should you keep, and for how long?
According to Schenck, a top CPA and consulting firm, the answer to this is “everything” when it comes to sales and use tax documentation. Here’s what they advise for several common records:
- Sales receipts (electronic or paper): 7 years
- Exemption certificates: Permanently
- Sales and use tax returns: Permanently
- Purchase invoices/payables (all invoices): 7 years
What happens if your records aren’t accurate?
You could be in for a host of problems if you don’t have accurate records. For example, if you don’t keep track of every transaction, that means you might not be collecting or filing correctly, a common problem due to the fact that there are so many different moving parts for sales taxes. Sellers can actually be fined for poor record-keeping, especially if they don’t pay the taxes they’ve collected to the right place (or at the right time).
What happens in a sales tax audit?
If you’re audited, bad records can make an already daunting prospect even worse. The average audit lasts more than 30 days, and when you can’t prove you’re collecting the right amounts — and paying the right amounts — you’re likely going to face a frustrating and costly experience.
Avalara AvaTax customers get an accuracy guarantee, but our goal is making sure you never have to use it. Avalara CertCapture allows you to store, manage, and renew tax documents in the cloud, and our other products for small businesses can help you stay in compliance with collecting, remitting, and filing.
Because the best way to defend against an audit, after all, is avoiding one in the first place. And the second-best way? Having all of your records, ready to go, knowing they’re correct.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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