Why Sales Tax?

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The concept of sales tax eludes us in our everyday lives because it’s something we're used to regularly paying as the consumer of goods and services. Taxes have been around since the beginning of civilization, and consequently, not something that we’re actively concerned about at a granular level on a day-to-day basis. While this might be true for the everyday consumers, the same cannot be said for business owners who often, inadvertently, must serve as the sales tax collection agent on behalf of any given tax authority.

As entrepreneurs, company owners, managers, and employees tasked with overseeing a company’s finances, you are in the business of creating value to your customers in return for a monetary reward. Though operational decisions must be made for this purpose, it is important that you are aware that changes in any given business activity can also generate unintentional sales tax consequences. That in mind, you must place a greater weight in your knowledge of sales tax, especially in navigating a rapidly changing digital business environment, to remain a viable and successful operation. Tax demands our utmost diligence.

Unconvinced that tax really matters? You may wonder: what are sales taxes to begin with?

The textbook solution would be a tax levied on the sales of goods and services which is usually measured as a percentage of the purchase price of that good or service and that is collected from the seller. Though, a valuable reference point, simply memorizing a textbook definition is not sufficient to aid our endeavors in the business world. Since we have been a consumer in addition to being involved at a business perspective, we are aware, in a practical sense, that we are charged sales tax on purchases of goods or services. A quick glance at your latest retail or restaurant purchase can reveal that you paid tax on the good itself, taking more money out of your pockets. But what exactly is the process that is behind that three-letter word line item on your purchase? Why must the business calculate and impose that tax?

We think of the government as we read the word “tax”, which is the right thought process overall. Indirectly, it is the government that requires each individual business making sales of a good or service to collect tax from its customers and pay an exact amount to the government on a periodical basis. No, the government will not say how much in tax you owe because as a tax collection agent of the government, it is up to your business to make that determination. Sales tax, in plain words, is a liability associated with each sale of a good or service which is used by the government to improve public services for improving any given community, e.g., city, county, and state.

Such tax agent responsibilities are unavoidable as any other form of tax, but exceptions do exist e.g., absence of a sufficient connection to a taxing authority, product, or service taxability, and considering any available customer exemptions. We will discuss these exemptions another time, but for now back the original question: why does sales tax matter to you and your business?

Paying taxes properly and promptly is the most important thing since your business is being trusted as the government’s tax collection agent. Every month, quarter, or year, (depending on the filing frequency that a company has been assigned), the government expects every company that sells goods or services to report and pay a specific amount of sales tax on every good or service sold. If these tax liabilities are not paid in a timely manner, not paid at all, or paid incorrectly the government can impose penalties and interest, cease your business’s assets or even prevent you from doing any business in a state entirely. Incorrect reporting of these tax amounts can impact and damage the financial success and sustainability of your business entirely. Fortunately, you have now taken the first step to overcoming unintended consequences: awareness. While there is a cost to complying to any given state and local tax authority, ignoring the unavoidable requirement is not a long-term solution in operating a successful business. With the proper steps taken, these unwanted consequences are easily avoidable.

To ensure the proper reporting of sales tax, your company must complete a few simple tasks every reporting period:

-All sales must be recorded properly

-Correct sales tax amounts must be collected at the time of sale

-Tax must be sent to the government on time either online or by mail along with a correctly filed tax return

Sound easy, right?

You may think exactly the opposite, which is perfectly understandable. You don’t need to worry if you take precautions to safeguard your company’s future success and continuation of business. One of the easiest, most cost-efficient courses of action to protect your company is outsourcing all your sales tax compliance needs. That is why State Tax Advisors is happy to guide your company to tax compliancy and keep your company’s well-being our top priority. State Tax Advisors with its’ Audit, Compliance, and Business Registration Departments always places the customer first. Our centralized goal is for our clients to become and remain compliant so that they can focus on what they do best, adding value to their customers.

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