Mind The Gap: What You Should Know About Avoiding a Tax Gap - Taxify
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Mind The Gap: What You Should Know About Avoiding a Tax Gap

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Mind The Gap: What You Should Know About Avoiding a Tax Gap

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In simple terms, the sales tax gap is the difference between the sales tax your business owes, and the amount you’ve paid. While deliberate tax fraud obviously results in a tax gap, even innocent mistakes can create a tax gap. Charging incorrect sales tax, not charging sales tax in states where you have nexus, and other errors can quickly create a gap between what you owe and what you’ve paid. Underreported and delinquent taxes also contribute to a tax gap. In the end no matter how the gap was generated, it is a easy trigger for an audit.

Why does my tax gap matter?

In the big picture sense, a tax gap leads to lost revenue for the state economy. In fact, eCommerce business contributes to nearly $300 million in lost revenue every year. The more immediate affect for your eCommerce business is if there’s a noticeable difference between the sales tax a similar eCommerce business collected and what yours has collected. This scenario is often something that results in your business catching the eye of an auditor.

In any audit situation, a sales tax gap can mean hefty fines and other penalties. It’s much easier and less costly just to pay the correct sales tax all along. Of course, calculating sales tax can be notoriously tricky, which is why we’re here to help.

How can I avoid a sales tax gap?

    1. Know Where You Have Nexus
      To be sales tax compliant, you must know where you have nexus. If you have nexus in a state, you must collect sales tax there to be compliant and avoid a tax gap. If you aren’t sure where you have nexus, our guide is a great place to start.
    2. Set Up Your Shop to Automatically Charge Sales Tax
      Whether you’re using Shopify, Amazon FBA, Magento, or a combination of various eCommerce platforms, it’s crucial that your customers are being charged the correct sales tax everywhere they buy your products. While some eCommerce platforms can be set up to charge sales tax automatically where needed, integrating with a service like Taxify ensures you will always be collecting the correct rate. Best practices are to set this up for every state where you have nexus, even if you haven’t had your first sale there yet.
    3. Use a Service Like Taxify
      Taxify exists to make sales tax effortless for our customers, and that applies to avoiding tax gaps. With Taxify, your sales tax compliance is completely automated, taking the headache out of figuring the correct sales tax rate, filing, and remittance. One of the major causes of sales tax gaps for eCommerce business owners is having to keep track of sales tax for various platforms and accounts. Since Taxify brings all of your accounts together, this problem is eliminated. Taxify also keeps all of your records in one place so that all information is easily accessible in the case of an audit.
    4. Hire an Accountant
      If you are worried about sales tax compliance or have an especially complicated sales tax situation on your hands, it’s always a good idea to sit down with an accountant. An accountant will help ensure that your sales tax records are correct, organized, and filed on time.

By being careful about sales tax on the front end, you can save yourself huge headaches later on. Here at Taxify we are always ready to help you with the ins and outs of sales tax, making your life simpler. Don’t hesitate to reach out with any questions you might have about sales tax. If you would like to schedule a demo or trial, we would be happy to assist.

Have some more questions? Let us know! We’re happy to help, and we love talking taxes.

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