Sales Tax Compliance: 5 Best Practices for Businesses
Sales tax compliance is an ongoing challenge for businesses, and mistakes can lead to large outflows of company cash. Sales tax management is often assigned to an overburdened finance professional or a team member unfamiliar with tax laws. As a result, businesses often struggle to navigate the complexities of exemption certificates, nexus rules, and tax return filing.
To avoid financial pitfalls, companies need to establish best practices for managing sales tax compliance. Here’s what you should know to stay on top of your obligations.
1. Ensure Proper Collection of Exemption Certificates
If your business sells taxable goods or services, you are responsible for determining whether you need to collect and remit sales tax. However, customers may provide exemption certificates that allow them to purchase goods tax-free based on their use or business classification.
The problem? Many businesses fail to obtain these certificates at the time of sale. Instead, they assume the buyer qualifies for an exemption and proceed without documentation, only to realize later they lack proof when facing an audit.
Always require a valid exemption certificate before processing tax-free sales.
2. Stay on Top of Sales Tax Nexus Rules
A business must register, collect, and remit sales tax in states where it has nexus—a connection that creates a tax obligation. Nexus can be triggered by:
A physical presence, such as offices, warehouses, or employees in a state.
Economic nexus, meaning a certain level of sales revenue or transactions in a state.
Participation in marketplace sales, where online platforms collect tax on your behalf but may still require compliance reporting.
If your business has expanded operations or has remote employees in new states, you may have tax obligations you’re unaware of. Conduct regular sales tax nexus reviews to ensure compliance in every state where you do business.
3. Don’t Assume Third-Party Filing Services Are Error-Free
Many businesses use third-party providers to file sales tax returns, assuming they will catch any discrepancies. However, outsourcing doesn’t eliminate the need for oversight. Miscommunications between businesses and tax service providers can lead to errors, missed payments, or incorrect tax filings.
For example, if a business fails to charge sales tax in one required state due to an IT or administrative error, an unverified tax return could go unnoticed for months or even years, leading to major liabilities.
Even if you use an external tax service, review filings internally to ensure accuracy.
4. Conduct Regular Sales Tax Reviews
Periodic sales tax health checks can prevent both overpayments and underpayments. In some cases, businesses unknowingly overpay sales tax on exempt purchases, such as machinery or advertising services, and fail to request refunds. Conversely, others underpay tax and expose themselves to penalties.
Key signs that your business may need a professional review include:
You don’t have a structured use tax process (meaning no internal review of tax-exempt purchases).
Your process hasn’t been reviewed in years, leaving you vulnerable to compliance changes.
Your tax strategy wasn’t developed by a sales tax expert, leading to potential overpayments or errors.
5. Verify Sales Tax on Purchases to Avoid Overpayments
Many businesses focus on sales tax collected from customers but neglect tax paid on purchases. If you buy goods or services without being charged sales tax, you may be required to self-report use tax. On the other hand, if you are overcharged sales tax on an exempt purchase, you could be entitled to a refund.
For example, a company that improperly self-reports tax on exempt equipment purchases could overpay millions in taxes unnecessarily. A sales tax expert can identify these errors and recover overpayments, putting money back into your business.
Work With a CSH Sales Tax Expert to Minimize Risk
Sales tax compliance requires constant attention, and even businesses that outsource their tax filings can still make costly mistakes. From ensuring proper exemption certificate collection to identifying overpayments, a CSH tax specialist can help prevent errors before they become expensive problems.
Even if your company already has a process in place, a second look from an expert could reveal hidden risks—or hidden savings. Connect with our team and take control of your sales tax strategy today by ensuring your compliance process is accurate, optimized, and audit-ready. Let’s get to know each other.
