Depending upon the state and local government tax law, companies are subject to pay, collect and forward sales and use taxes. Do not rely on an uninformed and untrained clerk to decide what is taxable and what is not for your firm. Hire an expert to analyze all your purchases made during the year and determine whether they are subject to tax or not. Make sure to do this if you are a manufacturer. You cannot afford to allow just anyone in your firm to make these potentially costly decisions.
The problem with paying too much tax or not enough is that you can only lose if you are audited. State and local tax auditors do not come and visit you to find and declare that your company has paid too much. They are paid to sniff out underpayments. You want to be sure your decisions when making purchases, paying bills and billing your customers do not put you at risk of a future audit, fines and penalties, and draw costly scrutiny by government auditors.
Two Sales and Use Tax Risks:
- Taxes on Purchases/Services: You pay taxes on the products and services you buy. You want to be certain you are not overpaying because it is very likely you will never get over-payments returned to you (auditors look for liabilities and not what they owe you).
- Taxes you charge customers and collect for government: You sell your product or service and either charge your customers sales and use tax or not (dependent upon their declaration to you of their tax status). You want to make sure your paperwork is adequate to protect your firm if your billings are found to be incorrect.
If your recordkeeping is lousy, you can end up paying taxes for customers that should never have been missed. If you are too zealous about paying taxes on your purchases, you could be paying too much when you should be declaring your particular purchases exempt from tax.
Find out. Hire an expert who makes these determinations every day and has experience with firms like yours. For all of the products and services your firm buys, ask your hired expert to list which of those are taxable and which are not. Arrange a future agreement with this expert for him to be available to decide when your company begins buying new items. Ask that he make a determination versus having untrained employees guess wrong. Ask that he update your specific sales and use tax guidelines, date them and review tax rulings in view of your listing. It is worth it because you do not have time to be the expert.