Mark Wilhelm - The Recovering Accountant
For those of you who file annual sales tax returns at the end of each year, you might be familiar with some of these struggles. On the one hand, you think “ah, just once a year, I can handle that.” On the other hand, once the end of the year comes, you think a few other more colorful thoughts… like I did.
A few years ago I was the comptroller for a division of a Fortune 50 corporation that had service centers and sales offices in quite a few states. As a result of those physical locations in the various states, the company had to collect and remit sales tax on behalf of those states. However, most of our primary sales were to resellers or customers using our products in their manufacturing process, and were therefore typically tax-exempt sales. In the state of Massachusetts, that made our sales tax liability small enough to require filing only once a year.
I thought “Filing each and every month extends my closing cycle and is an unneeded distraction, but once a year? I can handle that.” I couldn’t have been more wrong. By the end of the year, I had other things needing my attention, such as get my final numbers to corporate headquarters, complete my year-end analysis tasks, start on my IRS tax return work papers. Oh yeah, I need to complete that annual sales tax return for Massachusetts, AND get it filed by January 20th. How am I going to squeeze that activity into my schedule?
Where the hell did that number come from?
The first thing I would do every time sales tax return filing came round for Massachusetts is spend the better part of the day pulling my work papers (and I use that term loosely… notes scribbled on some computer print-outs and a couple copies of the previous year’s sales tax returns showing my different iterations of completing the form) from the previous year and looking at the figures. It would take me some time to determine how I came up with the numbers I had for the prior year.
I had to assess how I identified the exemptions and categorized them so I could perform the same data massage with this year’s information. After all, I only did this once a year for the state of Massachusetts; I never remembered all the details.
My staff had an annual pool to guess how many times they’d hear my rant of, “CRIKEY, where the HELL did that come from” or “How in the HELL did I get that number!” come bellowing out of my office.
Use what?
Once I gathered last year’s information and figured out how I came to the conclusions I did, I looked at the forms for the current year—which were usually modified from the prior year (thank you MA DOR!). After perusing the form, I could begin to consider how to take this year’s information and present it in a manner consistent with last year’s return.
Why was that important, you ask? I want to fly under the radar; file on time and keep my numbers trending in the same direction, year-to year. Well, if a sales tax return is enough different than the prior year, it is a red flag for an audit. And I certainly didn’t want to run that flag up the pole.
Time—What is it worth to you?
For a single return, like Massachusetts, I could spend an entire day gathering the information, researching and ensuring I have all the data necessary to file the sales tax return properly and remit the actual amount collected. Unfortunately, the Massachusetts return was not my only annual sales tax filing.
I had four other states requiring an annual sales tax return, which meant a week of my time was spent getting sales tax returns taken care of just for annual returns. Then there were the semi-annual returns. I had a handful of those.
Since the company only actually charged sales tax on a small portion of our sales, our Enterprise Resource Planning (ERP) software didn’t support sales tax, and I didn’t have a built-in automated solution to handle the sales tax or the returns process. Because our sales tax was such low volume, the company didn’t put a lot of effort into keeping and maintaining good records, which was in my mind an open liability. And on top of that, since I filed so infrequently, the audit risk was increased if I didn’t figure out how to do it consistently each time.
Finding a service to manage our sales tax and filing and remittance of our sales tax liabilities would have made sense, AND would have saved my time and my company’s money!
If this makes sense to you, too, learn more about automating your end-to-end sales tax compliance duties with AvaTax at www.avalara.com/products/avatax or call 877.780.4848 today.
