CPA Practice Advisor

JUN 2018

Today's Technology for Tomorrow's Firm.

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JUNE 2018 ■ 31 SALES TAX & COMPLIANCE I predict that every one of you has a client just like this person. As I said before, your clients already consider you to be their expert in all things tax, so they may assume that if you're not doing sales tax returns for them, they don't need to worry about it. There is room here for many unfortunate mistakes. Here are the three biggest risks with state sales tax compliance that your clients (and your firm) face. #1 – Undetected nexus. Your clients may be performing activities that create nexus, and no one has ever considered the sales tax implications. #2 – Under-collected tax. Your clients may know about nexus, but they're not using the right rate. The United States has thousands of separate sales tax jurisdictions, and the rate can change by three to four percent from one location to another if the sale crosses a boundary. If your clients have customers in many jurisdictions, it can be hard to get the rate right. An easy way is to look it up on tools like Avalara's TaxRates. #3 – Tax collected and not remitted (TCNR). This is the cardinal sin of sales tax. TCNR can happen when your clients are collecting tax, but not filing returns. States tend to view that as very serious and criminal penalties can apply. Myth # 2 – You Need to be a State and Local Tax Expert to Provide Services I know that many accounting firms use a manual approach for sales tax returns, if they do them at all. It's how we first started in my firm. The manual effort goes like this: Accountants download the sales data from their clients, and after endless spreadsheet manipulations and macros, they produce a report that tells them how much tax was collected in each taxing jurisdiction. Then, they fill out the forms manually or online. Just as automation in bookkeeping has introduced amazing efficiencies, automation in sales tax return preparation is turning what used to require hours of data manipulation into something any accountant can do, easily. With easy-to-use software, you can produce accurate returns with a few clicks of a button and you don't need to be a sales tax expert. THE EFFICIENT WAY TO DO SALES TAX RETURNS: AUTOMATION There are several solutions for automating sales tax returns. These bring efficiency in time, accuracy and the client experience. For example, Avalara's automated solution for sales tax returns, called TrustFile, hooks up directly to your clients' sales data. This eliminates the need to download sales data and perform endless spreadsheet manipulations. Another beautiful thing about the automated returns process is it integrates with all of your clients' accounting platforms. The data is pulled into TrustFile and it actually populates all of the forms. Automating sales tax returns also removes one of the major pain points of the old method. With the old method, we would populate the forms and send them back to the clients. It would be up to the clients to file them and pay the taxes. With automation, once the returns are populated, you can just click a button and the returns will be filed in every state, with the funds be removed from your clients' account. Accurate calculations for both sales tax and remittance provide another major pain point alleviated by automation. In the United States there are 13,000 taxing jurisdictions that impose their own tax rates, but not every state has central administration of all the local taxes. In many states, each local jurisdiction administers its own sales tax, so you actually have to file returns with those local jurisdictions. TrustFile is on the verge of being able to provide even the local returns. I hope you see now that adding state and local tax returns filing to your firm's services can make you more of a trusted tax advisor to your clients, and a true hero in keeping them safe from the risks of not getting sales tax right. And with today's software tools to automate the process, you don't need to be a sales tax expert to do this efficiently and profitably. ■ For additional information on this topic, view a recording of Andy's webinar How To make Money Doing Sales Tax Returns ( watch?v=MsX2Y1602R8) Andrew Johnson, CPA, is managing partner of Peisner Johnson & Company, LLP, a tax consulting firm that solves its clients' state tax problems. Contact him at

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