How to Fix a Sales Tax Error
Businesses are run by humans and are therefore prone to mistakes. When those mistake involves the miscalculation of sales tax, the company in error risks the loss of money or business and can incur the wrath of the state affected. By law, a vendor is not allowed to keep any income that comes from such an error, no matter how small.
How can vendors be sure they haven’t made an error? What can they do to fix these mistakes and how do they prevent any in the future? The following guidelines will benefit any ecommerce shop:
1. Double check for sales tax errors before it’s time to file.
Getting penalized for improper filing can be far more problematic than making the error in the first place. Never assume that every transaction has been processed properly. With all the recent changes in sales tax regulations on both state and local levels, errors are more likely than ever to occur. Catching these issues before tax filing deadlines pass can save a company from a host of fees and penalties.
2. Know the sales tax laws and changes.
As discussed last time, online vendors need an experienced professional to help guide them through the maze of state and local sales tax laws including keeping current on regulation changes. This not only includes nexus laws, but also items such as applicable sales tax exemption guidelines and up-to-date resale certifications.
3. Use sales tax software to catch and prevent errors early.
It makes good sense to use a system that can spot and flag these errors in advance. A professional tax consultant such as Accurate Tax can help vendors select the software that best fits their needs and set it up to ensure that sales tax processes are correctly automated.
4. Resolve errors quickly.
If a company discovers that a customer’s sales tax has been overcharged, the best practice is to resolve the situation quickly. It’s wise to issue the customer a refund and then file with the appropriate state for a refund. Avoiding the problem can damage a company’s reputation and result in a loss of business. Additional penalization and fees be incurred, as well as facing an audit. On the other hand, refunding a customer, even if it involves extra cost, promotes brand trust and can help a small company become known as a reputable vendor.
5. File early.
Businesses can set themselves up for success by filing early in order to have enough prep time, including having all supportive documentation, filing the correct forms and states and properly documenting errors.
6. Be prepared for an audit.
Recently, states in need of budget have been cracking down on sales tax errors to recoup shortfalls in sales tax revenues. Companies that catch errors would be wise to be prepared for this process, with documentation, certifications and updated software processes.
Sales tax regulations are still extremely complex and require diligence. Smart companies will take the time to make sure they are in compliance at every level now and will implement software that can help prevent and errors, before the worst happens.