7 Pillars of a Successful Sales Tax Strategy

Michael J. Fleming is the founder and president of Sales Tax and More, a full-service consulting and solutions firm with a passion for state tax. He is one of the country's leading authorities on sales tax issues such as consulting and research, registrations, returns, nexus, drop-shipping, eCommerce, and service providers.

Michael is a renowned writer and speaker, and he regularly presents on webinars. He is also the host of the Sales Tax and More Podcast, where he shares his wisdom and learnings with his audience in order to help them navigate the tricky world of taxes.

In this episode…

Most issues related to sales tax can be traced back to one or more of the seven pillars of sales tax success. These are the foundation blocks to any successful sales tax strategy, and, according to Michael J. Fleming, they can help a business mitigate or eliminate possible exposures during an audit.

So what are these seven pillars? They include nexus, exemption certificate management, registrations, and more. Michael and his team at Sales Tax and More want to help you stay aware of these pillars, as failure to comply can often lead to penalties and interest.

In this week's episode of the Sales Tax and More Podcast, Michael J. Fleming sits down with his co-host Ellie Moffat to talk about the seven pillars of a successful sales tax strategy. He explains where the pillars come from, why they are important, and how they help businesses during a tax audit. Stay tuned.

Here’s a glimpse of what you’ll learn:

Michael J. Fleming explains where the pillars of sales tax success come from
The seven pillars of a successful sales tax strategy and why they are important
Sales Tax and More's upcoming webinars on each of the seven pillars
Where to learn more about Sales Tax and More

Resources Mentioned in This Episode

Connect with Michael

Sponsor for This Episode

Sales Tax and More assists companies and their trusted advisors like CPAs with sales tax needs. They offer consulting and research, registrations, returns, and so much more. Over the years they have assisted thousands of sellers both foreign and domestic with their tax issues in the United States and in Canada.

To learn more about their services, visit https://www.salestaxandmore.com/.

Make sure to register and join the Sales Tax and More Webinar to get access to complex materials on tax in an easy-to-understand format.

Episode Transcript - Audio Version

[0:10] Intro: Welcome to Sales Tax and More, your go-to resource for all things state tax-related. Now here is your host, Michael Fleming.

[0:26] Mike: Hi, Mike Fleming here founder of Sales Tax and More and today's co-host of the Sales Tax and More Podcast, where we talk about everyone's favorite topic, which is of course sales tax. Today my co-host Ellie Moffatt is going to be interviewing me about the seven pillars of sales tax success. But before we get started, I'd like to introduce you to Ellie.

[0:47] Ellie: Hi Everyone, it's really great to be here. And sales tax is definitely my favorite topic. Before we get started, as well, I'm going to introduce Sales Tax and More. So Sales Tax and More is a full-service consulting and solutions firm. We have a great team here of experienced tax professionals. We're very dedicated to fulfilling any of your state tax-related needs. So we do a lot of sales tax returns, tax registrations, consultations, research, and like our name dates more. So if you have questions about our services, please do not hesitate to reach out and ask we will give you plenty of ways to do so in this podcast and in the podcast notes as well. So, Mike, our topic today is the seven pillars of sales tax success. I know we have a webinar with the same name. But where do these pillars come from?

[1:35] Mike: Well, great question Ellie. And over the years, we've seen that virtually all issues in an audit can be traced back to one or more of these pillars, these, you know, seven pillars. So when I think of a pillar, I think of something you know, the Roman pillars, you know, great big, sturdy constructs that are holding something up. So I think of it as a strong foundation. So our goal is to make you aware of these pillars and help you strengthen those pillars. And you know, having a strong pillar is not going to prevent the sales tax audit. But if you're making sure you're taking care of these pillars, if you are audited, they are going to help mitigate or you know, even eliminate any exposure that you do have.

[2:34] Ellie: So, Mike, what can you tell us what those seven pillars are?

[2:38] Mike: Absolutely. So, Nexus, taxability, rate, use tax, exemption certificate management, registrations, and sales tax returns, and then sales tax audit defense.

[2:54] Ellie: Thank you, Mike. Okay, so you told us what they are. Can you take a few minutes to tell me why those are important?

[3:01] Mike: Yeah, I guess you'd want to know that. So, you know, Nexus is the first and you know, perhaps most important, it's the one that generally is going to provide the most exposure because if a state finds you and you've not been registered, you know, the past exposures not limited to the statute of limitations that they can go back to the date that you first had Nexus. Now, Nexus is just a fancy word that we've used to mean link or connection. And it's the link or connection with the state that has to be present before the state can require you to do anything. So knowing your Nexus footprint is very important. If you don't have any links or connections with the state. You don't have a requirement to do anything but if you do have this link or connection, then you may be required to collect and remit tax. And, you know, in theory, a state can go back, you know, 20 years. In reality, they only go back seven, eight, or ten years now, I say that tongue in cheek seven, eight, or ten years is still a really long time, and they're gonna want all of their back tax penalty and interest. So it's important that we know what our Nexus footprint is. The next one is taxability. And you would not believe how many companies don't get this, right. I mean, some people do a lot of research and they understand what they sell, whether it's a tangible personal property or service, they understand it's where it's taxable and where it's not. But a lot of people just go off what they think or what they feel. Sometimes, you know, they use common sense, and unfortunately, in the sales tax world, common sense doesn't always play a big part. So we see lots and lots of mistakes when it comes to taxability issues. And these mistakes are not just made by companies. We also see, you know, plenty of trusted advisors out there many in the accounting field, make mistakes when it comes to taxability, oftentimes, you know, it involves services, and a lot of, you know, accountants out there still think services are not taxable. And every state taxes, at least some services, and where it gets really tricky is when you're mixing services and tangible personal property together. So taxability, big, big issue. Rates, whose rate should we be charging? You know, when we talk about rates, we're not actually talking about the rate itself, but where the sale is sourced, which states the rate should be charging, and if you're not getting the rates right, even if they're in the right state, those are red flags. So State says you're consistently getting rates wrong, you may find up that you're now a target for a sales tax audit. Use Tax just because your vendor doesn't charge you sales tax doesn't mean that the sale is necessarily tax-free in instances where there's, you know, a taxable item. If your vendor doesn't charge you a sales tax, either because they don't know they have nexus or they're just not collecting the sales tax, then or they may not have nexus, you're supposed to self-assess and remitted to the state directly as a use tax. And this is a huge issue. It's the number one leading cause of assessments, large assessments in audit, so especially, you know, if you're making big software purchases, use tax can have a tremendous impact there.

[7:00] Mike: And that's followed by exemption certificates. So exemption certificate management, it's not just the collection of the certificates, but someone's got to be validating those certificates. They have to make sure that they're all on the right forms. They got to make sure they're completely filled out. That, you know, makes sense that the certificate being provided, the exemption being asked for is common sense. So, exemption certificate management, it's either the number one or number two leading cause, depending on what type of company you are for large audit assessments, so use tax and exemption certificate management, you know, exemption certificates. Those are the biggest problems in an audit not the only problems but the biggest problems. For registrations, you need to know how to register correctly. Some states give you multiple options. You know when you know nowadays a lot of people are getting registered because of the economic nexus. Generally, you're going to want to be registering for the vendor’s use tax or the seller’s use tax. If there's an option don't confuse it with consumer use tax, which we just talked about. And then once you know, the reason why you want to do that, first of all, let's look at that, vendors use tax is usually a much cheaper situation here generally doesn't automatically make you subject to registration with the Secretary of State. It doesn't automatically require you to pay income tax, you know, sellers use tax, excuse me, seller sales tax generally is if you have a location in a state where these use taxes or if you're registering and selling into the state from outside the state. So an important distinction there in some states, not all states, some states have done away with that distinction. The other issue is, when you're doing returns, make sure that the returns you're doing match the type of registration you have. If you're filing the wrong types of returns, again, that's a red flag. And, you know, this is important, you know, if you're going with some of these lower-tier software companies, someone like a Tax Jar, they don't have the ability to file all the correct returns out there. So you know, if you're registered for the Oklahoma vendors use tax and they're telling you to go back out and get registered for the sales tax that is just wrong. And if they're filing the wrong return red flag. Next thing you know you're getting chosen for an audit. So registrations and returns that's where a lot of red flags show up. You want to make sure that you're limiting these red flags, sales tax audit defense. Now, you know, this is usually after the fact, the biggest thing for sales tax audit defense is that you've taken care of these other six pillars. Because if you've taken care of these other six pillars, you shouldn't have very many issues in an audit. A lot of time auditors come in though, and they're acting like you're their buddy. And you know, you definitely want to be friendly with them. You want to have a good professional relationship, but sometimes they're trying to get you to volunteer information and you never want to volunteer the information. You also don't, I hear so many stories where people are putting them out, you know, in a shed in Austin, Texas, in the middle of the summer, with no air conditioning thinking that they're going to chase the auditor off for the exact opposite put them in, you know, some sort of basement with no heat in the middle of the winter and you know, Minnesota, the auditor is always going to get the last laugh, you definitely want to have a professional relationship with them. And they have a lot of leeways. They have a lot of latitude and you want them not to have an antagonistic relationship with you. So, audits are very, very important. You know, Ellie, we could go into hours on each one of these pillars, but I just want to touch base and let you know why they're important.

[11:42] Ellie: Yeah, I agree. Mike. There's lots of great information here. There's lots more great information you could go on. So where could people find that information? Where could they find out more?

[11:52] Mike: Well, you mentioned earlier that we have a webinar, so it's a two-part webinar. Each part offers one CPE credit. So two CPA credits in whole. So there are two hours. But again, two hours is not a lot of time. So you know, that's the 10,000-foot overview. We definitely jam-packed it with lots of information. And it is a free webinar so you get your CPE credit for free also. So that is a great resource. And we're now going to be rolling out a webinar, a one-hour webinar for each of these seven pillars. We're not going to start with nexus because we already have a number of webinars, again, complimentary, that touch on nexus, so we're going to start with taxability and spend the whole hour talking about taxability. Now, we could probably talk for two or three days about it. So we may start breaking out the taxability of different industries, but for now, we're going to do a one-hour webinar. And that's going to become live at some point in late October. And you can find all of these webinars on our website. It's under the resources tab and you click down and say webinars, you can see everything that we are currently are offering.

[13:18] Ellie: Thank you so much, Mike. And I just want to kind of give everyone some information to reach out to us if they have really specific questions here. If you have sales tax needs, we offer many solutions and services. Just like we stated before, you can reach out to me directly if you have questions. My email is emoffat@salestaxandmore.com. Or you can visit our website, www.salestaxandmore.com like we were talking about in addition to our services, we don't just have this one webinar. We have a whole series of free webinars that offer CPE credit, we have paid portions of our website. We have other free resources on our website, many things to help you out on your sales tax journey here. So thank you, everyone, for joining us today and we hope you join us in the future.

[14:14] Mike: Thanks, everyone. And thank you for joining us today and we hope to see you on the next episode of the Sales Tax and More podcast.

[14:23] Outro: Thanks for listening. Be sure to click subscribe and check out all of the resources we have out on the web.

PodcastMichael FlemingSeptember 16, 2020Sales Tax, Michael Fleming, Sales Tax and More, IRS, Ellie Moffat