Will's Whiteboard: 3 Sales Tax Mistakes that Can Cost You Big
- Sales and Use Tax
- June 26, 2013 | Will Frei
Smart business people are lousy sales tax experts.
States expect businesses to comply with changing tax laws. However, many businesses lack the resources or technology to be 100% compliant, and so face stiff penalties when they get audited.
Watch the video, and in 4 minutes learn about 3 terrible (but common) sales tax mistakes, and what you can to to avoid them.
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Hi. Welcome to Will's Whiteboard, I'm Will. Here at Avalara, as an industry leader in sales tax automation, we hear from all kinds of businesses about how they handle sales tax. And the most painful statements come when we hear from really sharp business people who just don't understand how sales tax works. I'm going to share a few of those real statements with you today, and hopefully you can learn from these people's mistakes.
All right, so the first statement we have comes from Susan, who's an E-Commerce business owner. Now that's not a real name, I've changed the names here. But these are real statements. Susan says, "I've charge the highest sales tax in every state so I don't have to look up rates or maintain tax tables." So she's saying she picks the highest rate so she doesn't have to mess with the other stuff. Well I'm sorry to tell you Susan, that's not really smart when it comes to sales tax. Here's why; if you overcharge customers for sales tax consistently, you open yourself up in some cases to a class- action lawsuit. And also, if you consistently charge the wrong sales tax amount, whether it's overcharging or undercharging, if states find out, they're going to charge you P&I. That's penalties and interest. So they're going to look at how much you owe. They're going to charge you interest on that. And then on top of that, you're going to get penalties for calculating incorrectly. So you want to have the right rates when it comes to sales tax.
Our next statement comes from, Alan, who's a controller at a retail company. Now Alan says he sells out of Oregon in the mini-states and he doesn't charge sales tax because he's selling out of Oregon and their sales tax rate is zero. So for instance, he's got a salesperson in Illinois and he drop-ships product to Illinois to support that salesperson. But, he doesn't charge sales tax there because Oregon has zero percent...sales tax rate. Alan, Alan, Alan. That isn't how sales tax works generally either. You see, most states have a destination based sourcing for sales tax rates. That means, if you have some type of sales tax liability in Illinois and you're shipping to Illinois, that's the rate you have to use. And the state rate is 6.25 there. You can't use Oregon rate. Now luckily for you Alan, you only fall into one of these categories. P&I. Penalties and interest, so, here again, you want to have the right rate.
The final statement we're going to look at today comes from Frank the C.F.O. Frank says, "I've been collecting tax in 30 states for the last several years, but I never filed cause it was too difficult." Do you like prison food Frank? Because you just might have the opportunity to eat some. If you collect sales tax, that's the state's money. And if you don't give it to them, it is possible that you could end up in jail. Not only that, but if states find out, they're almost surely going to charge you copious amounts of penalties and interest for what you've done. So, what's the point here? Well the point is not that these people should go out and become sales tax experts. No. They're experts at growing their business. The point here is, there's a real opportunity for outsourcing when it comes to sales tax. Outsource it to technology that can handle it all for you and you can focus on doing what you do best, growing your business. Thanks very much. I'll see ya next time.