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September 2016 • www.CPAPracticeAdvisor.com 19 One of the key areas to know when it comes to sales tax is "sourcing," which means the location where a sale is taxed. Origin-sourced sales are taxed where the seller is located, while destination-sourced sales are taxed at the location where the buyer takes possession of the item sold. A s a seller, it is important to know whether you are located in an origin-sourced state or a destination- sourced state. Most states and Wash- ington, D.C., are destination-based. e 11 origin-based states are: A rizona, California, Illinois, Mis- sissippi, Missouri, New Mex ico, Ohio, Pennsylvania, Tennessee, Texas, Utah and Virginia. California is mixed: City, county and state sales taxes are origin-based, while district sales ta xes (supplementar y local taxes) are destination-based. Sales within origin- based states Generally, if you are located in an origin-based state and make sales to customers within that state, you would charge sales ta x based on your location, including any local and state taxes. For example, if you are based in Salt Lake City, Utah, and you make a sale to a customer in Provo, Utah, you will charge the applicable Salt Lake City sales tax on the sale. In the case of California, if you are based in that state and make a sale to another location in California, any city, county or state taxes will be based on the seller's location (origin), while any district sales taxes will be based on the customer's location (destination). Remote interstate sales However, origin/destination sourc- ing rules work differently if you are a remote seller, meaning you are based in one state and are selling into another state where you have nexus (an obligation to collect sales tax). In this case, sales will generally be destination-based. If you are selling to customers in a state where you don't have nexus, you don't have an obligation to col- lect sales taxes. Origin vs. destination in federal legislation Legislators have been making efforts for years to standardize sales taxes across the U.S. and even the playing field between online-based sellers and brick-and-mortar shops. Two major pieces of legislation propose destination-based solutions, while another proposal is based on origin sourcing. e Marketplace Fairness Act of 2015 and the Remote Transactions Parit y Act of 2015 would both broaden states' authority to require remote sellers to collect sales tax, regardless of whether a seller has a physical presence w ithin those states. In both proposals, there would be varying levels of exemp- tions for small sellers and sales tax rates would be destination-based. Meanwhile, the Online Sales Simplification Act (OSSA) is quite different in that remote sales taxes would be origin-sourced. Sellers would pay the collected taxes to their states, which would remit the funds to customers' states. In states with no sales tax, sellers would charge a flat rate on remote sales. States that opt to not participate in this method would be prohibited from imposing sales tax on remote sales. Unlike the other measures, the OSSA proposal would not prov ide a small seller exemption. Getting rates right A lthough origin-based sourcing is easier for businesses to administer because they only have to keep track of the rates where they are based, most states use destination sourc- ing, which requires you to figure out the correct sales tax rate for any location where you are selling and have nexus. e more business you do, the more customers you have and potentially, the more states where you have an obligation to collect sales ta x . For small businesses, trying to figure it all out themselves can be a time-intensive task that can result in higher risk of sales tax audit, underpayment or overpayment. One way of keeping up keeping up with sales tax changes, large or small, is sales tax automation. The Difference Between Origin and Destination Sales Tax By Scott Peterson W hen small businesses aren't aware of the nuances of sales tax law, they can increase their chances of audit, fines and repayment. Because many small businesses have such limited resources, this can hit them harder than it would for larger businesses. Sco Peterson is the Director of Government Affairs for Avalara, Inc. Sco leads Avalara's effort to be the first name in sales tax automation. Prior to joining Avalara Sco was the first Executive Director of the Streamlined Sales Tax Governing Board. For seven years Sco acted as the chief operating officer of an organization devoted to making sales tax simpler and more uniform for the benefit of business. Before joining Streamline Sco spent ten years as the Direc- tor of the South Dakota Sales Tax Division where he was responsible for the state sales and use tax, the state's contractor's excise tax, the sales and use tax for over two hundred cities, and the sales and use tax for four tribal governments. A Year in the Life of a SALT Accountant is sponsored by Avalara e n c e c c o u n t a n t b y A v a l a r a September SALT Checklist Analyze your clients for tax audit red flags (see related article at www.cpapracticeadvisor. com/11675349 ) Examine client internal controls relating to state and local tax issues and for future protection from audits Filings – in addition to current tax obligations, help clients get up-to-date on delinquent tax filings Reporting - review clients' year-to-date SALT ex- pense and liabilities for accuracy Planning – estimate and schedule all state and local tax filings that will be due in Q4 Make sure you're up-to-date on SALT-related leg- islation in all states where you have clients