Nexus —the connection between a company and taxing jurisdictions that triggers a sales tax liability—gets thornier the faster your company grows. Surprisingly, more revenue can mean more complexity and potentially greater risk of sales tax audit (more money, more problems?).
Here are 5 areas of sales tax risk relating to business growth and what you can do to address them:
Entering new states
With every geographical expansion, particularly entry into new states, a company needs to master the particular rules of that jurisdiction. Given the number of jurisdictions nationally (11,000) and the number of sales tax rate, rule, and boundary changes annually (greater than 100,000), learning the new sales tax rules in the new state is difficult.
Bringing new products to market
Offering a new product? Good for you! Be sure to study the implications of new products on your sales tax liability.
What one state considers taxable another state may not. So as you bring more products to markets in more places, your sales tax compliance burden grows. A great example of this complexity is the taxability of cloud-based products such as software, music, and movies.
Going global
In today’s world, plenty of businesses decide it’s a smart decision to begin to sell globally. Selling into the EU, for example, for an ecommerce business based in New York, might seem like an easy way to expand market reach. For many U.S. companies, however, VAT (Value Added Tax) can be tricky and prone to error.
Workforce expansion
Smart companies often turn to contract workers when there is a spike in demand or projected growth. It is an excellent way of increasing capacity without committing to fixed costs. Unfortunately, this flexibility represents a compliance risk.
Failure to upgrade your ERP
Companies are often reluctant to undertake adopting a new platform or technology, such as an ERP. Unfortunately, the nature of business growth often necessitates a closer look at legacy systems and their ability to manage specific elements such as sales tax risk.
