Avoiding Audits | Under-filing in Remote States
When filing taxes, there are lots of things to consider to ensure you’re compliant with the many, many laws that surround businesses. Recently, we’ve created a blog series on best practices to avoid triggering a sales tax audit. From avoiding the tax gap to filing and remitting your sales tax on time, these posts are loaded with content to help you do business better. Today, we’re going to review another best practice to avoid audits and other tax-related difficulties: under-filing in remote states.
What exactly is a ‘remote state,’ you ask?
Remote states are those states other than your home state where you have customers. If these states have sales tax (and you have nexus there), you must register for a sales tax license in that state. Then you’ll collect, file, and remit sales tax there.
It is your responsibility to know where you have a sales tax liability, as most states won’t notify you until you’re out of compliance and facing consequences. Fortunately, there are some tools out there to help you avoid this.
To determine which states you are required to collect and remit sales tax in, you should first figure out where you have nexus. Then, look up the sales tax license application for each of those states and have the application approved before you begin collecting sales tax there.
Sales tax applications are usually found on the state’s official state website. For example, if you have nexus in Colorado you can apply for a sales tax license here.
How can I avoid under-filing?
Once you apply for a sales tax license in the states where you have nexus, you’ll need to find the correct sales tax by state and locality. Unfortunately, these can change frequently and quickly become cumbersome to keep track of.
You aren’t alone though. Software like Taxify can automatically charge, file, and remit the correct sales tax per state for your small business. These tools help you avoid under-filing, by ensuring you charge the correct amount of sales tax on every single transaction.
Tidbits to Know:
- Most states consider utilizing Amazon FBA warehouses grounds for nexus in that state, even if you don’t have any buyers there.
- Even if you don’t have any sales in a given state, you are usually still required to file there as long as you have a sales tax license there. This is referred to as a “zero filing of return.” Skipping it can leave you vulnerable to audits, hefty late fees, and penalties.
- Unfortunately, ignorance isn’t bliss when it comes to sales tax compliance. Not knowing that you’re required to collect and file sales tax in a specific state won’t get you off the hook should you get caught.
Under-filing your sales tax can have serious consequences, but fortunately, it’s an avoidable issue. Sales tax can be a tricky thing, but we’re here to help. Be sure to check out our other resources, and if you’d like to learn more about how we can help simplify the process of collecting and remitting sales tax, request a demo below.
Have some more questions? Let us know! We’re happy to help, and we love talking taxes.
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