Businesses have an increasing need to hire state and local tax advisers to help meet the tax obligations of selling across the US. Here’s how to shop for a tax provider that will manage your state and local taxes correctly.
Multistate taxpayers have awoken to the need to manage their state and local tax (SALT) obligations. Wayfair and the subsequent state rollout of nexus standards around economic nexus have shined a light on this issue and become a driver for businesses to pursue compliance.
The recent explosion in online business transactions through platforms like Amazon makes it easier for a business in a single state to find customers in any state. If a business product is available online, essentially anybody with Wi-Fi and a computer or cell phone is a potential customer.
The evolution in the digital economy means more businesses are selling to customers everywhere they are able, which means these businesses also need to be able to tax out-of-state customers. This explains why sales tax software licenses have proliferated along with the need tfor external guidance to get it right.
Software is a tool that needs to be managed. Not all CPAs and attorneys have the expertise in these areas. Expertise is often siloed due to licensure or how vendors and services providers splice and dice the different types of taxes and how tax providers build expertise in one type of industry, tax or even state.
Sales tax management alone can go awry when little attention is given to sourcing revenue, understanding one’s business footprint, and how the business got that customer in that jurisdiction.
In these efforts, businesses typically need help. By the time harried management turns their attention to state and local tax issues, businesses often already have nexus in new markets and are noncompliant. This means trouble.
Why do businesses have a habit of overlooking SALT?
At TaxOps, we acknowledge that CFOs, VPs and other business leaders are dealing with a large pool of responsibility. Tax expertise may not be in their toolbox yet it lands on their plate when working with a company. State and local tax (SALT) is just one element of the overall operations of a business.
SALT is not to be ignored. Getting taxes wrong might fly under the radar for a time, but ultimately will have repercussions in the form of penalties, interest and back tax payments. These repercussions are typically expensive, which is why we specialize in SALT and help as many taxpayers as we can to avoid the black hole of tax noncompliance.
Why is a holistic view of tax, including SALT, so important?
For SALT-specific professional services, the proliferation of misinformation means that quality services tend to be overlooked unless a buyer knows what they are looking for. Businesses have a habit of avoiding the top-dollar SALT services and opting for an amateur or thinking sales tax software will suffice because they do not really understand what needs to be done and want a quick solution.
Tax, however, touches all aspects of a business. One common mistake is hiring a specialist that focuses on a single sub-category of tax, like sales tax, which may lead to poor business decisions and tax positioning.
There is a complex web of taxes that fall under SALT: payroll, income, sales/use, excise, unclaimed property, property, gross receipts and the list goes on. A specialist without a holistic view of SALT may be giving you great advice for one sub-category, but they are not necessarily considering the ramifications of another.
Large firms like Deloitte and PWC often work in conjunction with tax specialty firms like TaxOps. This is because the sheer volume of relevant information for a large firm often leaves little time to deal with the intricacies of the daily detail involved in SALT.
Businesses that don’t hire a third-party adviser for dealing with SALT tend to place tax responsibility on one individual or group of individuals that don’t have the necessary expertise to manage all types of SALT, including income/franchise, sales and use, property, and other indirect taxes. With so many hats being put on the in-house accounting or bookkeeping staff, it’s easy to mess up just a small piece of SALT that leads to major consequences.
Why should a business hire a SALT adviser?
Running a business is hectic work, especially if you are just getting started. Generally, entrepreneurs and executives often wait until a business is relatively successful to start worrying about filing SALT correctly. At that point, an audit is looming around the corner.
Thankfully, automation has come a long way. Businesses can rely on automation to a certain extent, but no two businesses are the same. Automated services can handle filing simple tax returns. However, when it comes to managing the unique aspects and nuances that every business has, these automated systems fall short and need human intervention.
Even if your business is relying on a person or a group of people rather than —or in addition to — automation, expertise across SALT types is rare and mistakes happen. Unfortunately, inaccuracies in SALT build upon each other and are often only exposed after the business gets in trouble. Rather than prevention, many businesses wait until punishment to fix their tax filing process. This is where tax advisers like TaxOps fill the void.
While business leaders take time questioning whether they need SALT advisory services, many of their businesses are failing to collect appropriate taxes and facing retribution. Leaders can wait for the audit “stick” to come in and enforce tax collections or hire a SALT adviser. Look for SALT advisers who have a fiduciary duty to you. As CPAs and attorneys we must act in our clients’ best interest, but advisers who are not CPAs ie sales tax software providers who offer ancillary services like sales tax registrations and voluntary disclosure agreements do not have a professional and legal obligation known as a fiduciary duty, because they are not licensed.
How can you identify a quality SALT service?
For SALT, the biggest sign of expertise is experience. Vet the experience of tax providers by looking at their past successes and failures. TaxOps has clients in Sweden and the U.K., where owners and managers have personal liability for the tax compliance which seems to be less comprehensive in the U.S. The U.S. expects you to comply, with an occasional audit to make sure you are keeping up. In Sweden and the U.K., the culture simply encourages tax compliance.
In the U.S., we don’t like paying taxes. In Sweden and the U.K., citizens seem to feel more obliged to comply with tax laws because they are more community focused. This means that handling taxes correctly is important to these foreign clients.
Because we have experience working successfully with these hardline clients, we are qualified to handle all aspects of U.S. taxes correctly.
Vet before you Buy
With Wayfair enforcement creating a SALT vacuum of business need, new tax providers with a variety of offerings and experience levels are flooding the market.
This makes it even more important that you vet professional services to ensure you are hiring not only a qualified tax provider, but one that is experienced enough to manage your entire SALT position.
When it comes to SALT, look beyond the sales pitch. Look to experience, tax type coverage and fiduciary duty to pick the tax adviser that gets you to complete compliance.