Sales tax got you spinning? Here’s how to simplify it

Let's face it: sales tax compliance can make even seasoned accountants scratch their heads. Between shifting nexus rules, ever-changing exemptions and the alphabet soup of state regulations, it's no wonder many firms stick to income tax and call it a day.

But Mark Luscombe, JD, LLM, CPA, and principal analyst for Wolters Kluwer says that's a missed opportunity. Here, Luscombe shares how accountants can turn complexity into client confidence by helping businesses stay compliant, spot risks before auditors do and use the right tools to manage it all efficiently.

—Interview by Janet Berry-Johnson, edited by Bianca Prieto

Sales tax laws are notoriously complex and vary by jurisdiction. What first steps should accountants and bookkeepers take to assess whether a client is at risk for noncompliance?

A good rule of thumb is to first conduct a review of every client's registration with the state department of revenue. Are they registered as a retailer required to collect and remit sales and use taxes? If not, should they be? Are they in compliance with state nexus laws? Is the client an online or remote seller? Has a client expanded its operations into a new state without registering with that state?

Second, examine the types of products the client sells and the taxability of their processes (Manufacturing? Fabricating? Electricity or utility generation? Research and development?) and analyze the state sales and use tax laws to determine whether there are any applicable exemptions or exclusions.

What requirements must be met to qualify for the exemption? Does the client qualify for that exemption? Review relevant court cases that litigated specific exemptions and the taxability of transactions similar to those of your client and confirm your position. In addition, verify whether the client is maintaining appropriate records to support any claimed exemptions.

Many firms focus primarily on income tax and leave sales and use tax as an afterthought. What opportunities do you see for accountants to add value by offering sales tax advisory services?

Many law and accounting firms offer tax planning and advisory services that focus on each client's specific circumstances. No one ever said taxation is simple, and companies of every size can greatly benefit from forming a relationship with accounting professionals who will map the best way forward to reduce tax burdens and obligations, evaluate nexus issues, modernize and simplify processes, leverage technology, ensure compliance and manage risk. All it takes is one bad result from an audit to demonstrate the benefits of being prepared and having confidence in your tax position. In addition, accounting firms can highlight the advisory services they provide with examples tailored to a client's specific industry.

What tools or technology do you recommend firms use to manage multistate sales and use tax compliance efficiently?

First, partner with a professional information and software solutions research service for tax, accounting and audit professionals that combines domain expertise with technology and provides customers with the specialized software solutions, taxability matrices and AI-powered tools they need to make informed decisions, improve workflows, solve complex issues and achieve better outcomes within their respective fields. Second, evaluate and use available tools such as those provided by the Streamlined Sales Tax (SST) Agreement: (1) Certified Automated Systems software solutions certified by the SST Governing Board; and (2) Certified Service Providers who are third-party vendors that handle sales tax calculation, filing and remittance on behalf of businesses. 

Wolters Kluwer provides a solution called CCH SureTax that helps businesses manage complex industry-specific tax rules, exemptions and audit defenses. The software that integrates with a customer's accounting, e-commerce or ERP systems.

With new legislation and economic nexus thresholds evolving post-Wayfair, how can accountants stay ahead of changes and position themselves as trusted advisors in this area? 

To stay well-informed and up-to-date on changes to economic nexus thresholds and all types of nexus (affiliate, click-through, economic and marketplace nexus), accountants must: (1) constantly monitor the enactment of relevant state legislation and administrative guidance issued by state departments of revenue; (2) regularly consult comprehensive research engines, including chart-based resources and taxability matrices; (3) take webinars and continuing professional education courses provided by tax research platforms that are focused on nexus developments and legislative changes and (4) use automated tax compliance platforms to track sales activity, monitor thresholds and manage multistate filings for their clients.

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The Net Gains is curated and written by Janet Berry-Johnson and edited by Bianca Prieto.