Sales Tax and More's End-of-Year Tips
As the 2022 year comes to its final month, if you are not mindful, it can go by in a blur. December is notoriously full of PTO, holiday parties, and goal-setting for the following year. Here at Sales Tax and More, we like to set you up for success. So as the year comes to a close, we want to help you keep a few things in mind.
Economic Nexus Review
Start the 2023 year off fresh! Don’t go into a new year with last year's problems. Take time before year-end to clean up any loose ends. If you follow us on a consistent basis, you know we are huge advocates of ensuring you are sales tax compliant. One of the steps to ensuring you are sales tax compliant is knowing where you and your business have nexus. Checking your nexus status in December can offer some benefits.
Many states reference the previous calendar year when calculating economic nexus thresholds to determine if they have been passed. Checking your nexus status in December will allow you to overview the last year and see if the nexus threshold has been passed. If it has been passed, the states say you should get registered; if you haven’t crossed it, you wait until the following year.
Some states say you must register if you pass the threshold in the previous calendar year or the current calendar year. Looking at sales in December can help give you a better understanding of if you will need to check again within the year to register. If you have a year with about 3-4% growth, then you might be able to get away with checking yearly. However, if you have a year with a significant percentage of growth, you might want to check on a quarterly basis.
You want to make sure you figure out any nexus or exemption certificate issues so you can take the necessary steps to fix them as you go into the new year.
January is an important month because a lot of the economic nexus thresholds within states reset, and the threshold is based on a previous time period. Meaning the previous calendar year, current calendar year, or prior 12 months. An economic nexus consultation with Michael Fleming can be a great tool going into the new year. In the economic nexus review, you will bring your sales for the previous and current year summarized by state and share an overview with Michael. Next, he will review the data state-by-state and offer recommendations on what actions, if any, you should pursue.
Physical Presence Nexus Review
Not only do you want to be checking your thresholds for economic nexus, but now is a great time to explore your physical nexus also. The states are coming for individuals and businesses who do not get this right. They are cracking down on companies for economic nexus, and while they are doing this, they will stumble across all other types of nexus. It is bad enough for states to find economic nexus that goes back for years; it is a lot worse if they stumble across physical presence nexus that could be 10 years old!
Looking at these different types of nexus is critical for remaining compliant. Looking at them in the month of December ensures you have both under lock and key before the new year when everyone starts to look at these things.
Exemption Certificate Spot Check Review
An exemption certificate spot check review can be helpful for many businesses. Missing, incomplete, or invalid exemption/resale certificates are some of the leading causes of large sales tax audit assessments. Many companies are under the mistaken belief that they have a system in place and they are protected. Unfortunately, this is not true for many companies.
In this review, we ask you to provide a list of exempt sales from the past 12 months. We then choose 25 transactions and ask for those certificates. Each certificate is then reviewed for the most common reasons an auditor would reject the certificate during an audit. This service can offer peace of mind even if no issues are found. This review is beneficial because it can show you where there are gaps that need to be addressed. Going through the motions blind or unaware can lead to problems down the road during a potential audit. Addressing any suspected issues each year can help make a potential audit a little less frightening. It is an opportunity to see issues and ask questions regarding why an auditor would reject those certificates and gain insight on how to fix them.
Unspent Budget
In most businesses, each department receives an annual budget. Often times if the entire allotment of the budget is not used, the following year's budget may be decreased. This year, if you have a surplus of funds in the department budget, consider prepaying for our services next year. This ensures you use up the budget and get a bit of financial relief in the first quarter.
Before you know it, the end of 2022 will be here. Take the next few weeks to plan and take action on a few items regarding sales tax. If you have any questions or want to set up a consultation, reach out at contact@salestaxandmore.com
By: Jayci Trujillo
This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.