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How to Avoid a Sales Tax Audit
Tip of the day

Mar 03, 2014 << Back

One word strikes more confusion and alarm in the minds of small business owners than most others: taxes. With the growth of e-commerce and the related regulations, sales taxes are especially vexing for today’s small business owner.

Tracking your sales tax obligations manually is a gamble. Not fully complying with changing regulations in your city, county, state and beyond could leave you open to scrutiny from auditors. How can you avoid a sales tax audit—or at least minimize the headache should you receive an audit notice? Here are a few pointers:

  1. Equip yourself: Make sure your company has the software necessary to compile and calculate accurate data on your sales tax obligations. Tracking this data by hand in a spreadsheet is not a fool-proof substitute for a comprehensive, automated tool.
  2. Digitize documents: Automated sales tax record-keeping makes it easy for your company to provide documentation of compliance. Well-kept electronic records, especially when it comes to exemption certificates, will help you stay on top of your obligations. Scan relevant documents and maintain them in automated sales tax software.
  3. Stay on top of changes: As a business owner, you’re responsible for keeping track of due dates, rate changes and boundary shifts in the jurisdictions in which you sell goods or services. This becomes difficult if you’re making sales in multiple states. In general, you are responsible for collecting sales tax in states where you have a substantial physical presence. However, the definition of this "nexus" varies between states, and can change if you sell through affiliates, at trade shows, or even have employees in other states. Be smart: There’s no shame in automating or outsourcing this taxing task.

By keeping your company in compliance, you minimize the risk of a damaging audit. Save your business time and money: Stay proactive in your sales tax management!

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