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Sales and use tax affects all businesses in some universal ways
Sales tax is in the news more than ever today with national legislation being debated in Congress, and many states struggling to gain a hold on internet sales and the related tax liabilities. The current controversies between a certain internet seller and a number of state revenue officials certainly made the front page in 2011. Sales tax policy is a fascinating subject and the internet revolution is pushing discussion of sales taxes to the public center. These developments indicate the high level of concern held by business leaders, politicians and bureaucrats in the sales tax field. The current focus on sales tax policy will hopefully produce a more rational sales tax compliance environment. Some day. For now, we need to acknowledge that the sales and use tax compliance arena is fraught with challenges for businesses of all sizes and types. Sales and use taxes impact your business on a daily basis with legal liability requirements and they affect your business on a broader scale by their influence on strategic decision-making. The effects of sales and use tax management and compliance are not limited to traditional retailers either. All types of businesses must be aware of the instances of sales and use tax, and the challenges presented by calculation, collection and remittance of sales and use taxes and documenting tax-exempt sales.
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Non-taxable transactions
Retail businesses, related entities, exempt organizations and governments are just some of the types of customers who do not expect to pay sales tax. In fact, unofficial polling suggests many will gladly not ever pay sales tax unless you ask for it! Unfortunately for your company, the vital information required to support an exemption from sales tax must be maintained by you, the seller. Thats right, the administrative burden of exemption management is on the seller. Your customers status as a legitimate exempt purchaser must be assessed by you, and you must maintain the documents and transaction details upon which you made your decision. Bottom line: the burden of proof is on the seller when the state eventually makes a visit expressing concern about exempt sales. How Tax Exemption Certificate Management Affects Your Business: For exempt sales, the core documentation required is some form of an Exemption Certificate. The Certificate entitles the customer to make purchases exempt from sales tax. The actual Certificate environment is less than precise however, as some certificates are limited to purchases of only certain items, others are limited to certain items used for the completion of a certain project; some certificates provide a fractional or percentage exemption, while others are date-sensitive. The proper application of each customers exemption certificate to each sale is critical to avoiding improperly exempted sales. Put another way: Its your job to manage the exemption certificates presented by your customers to minimize the risk of materially understating taxable sales. Lack of proper documentation of tax-exempt sales can cost you money.
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Author:
SHANE RATIGAN began his career as a self-employed business owner. After 10 years in the motorcycle business, he returned to college to gain a Bachelors in Accounting and a Bachelors in Business Administration. He went on to earn his Juris Doctorate at Syracuse University College of Law in New York and his LLM Masters of Taxation at the University of Washington in Seattle. Shane has spent several years counseling small business owners on tax and succession planning. He is a licensed attorney in Oregon and Washington. Shane currently works in sales tax law and sales tax compliance with Avalara, a Software-as-a-Service end-to-end sales tax solution for businesses of all sizes. Learn more about AvaTax today. AvalaraMaking sales tax less taxing.
Page 8 of 8. How Sales Tax Affects Your Business Avalara 2013
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