It’s easy to dismiss sales tax compliance as a business element that falls solely within the realm of tax and finance departments. And to a certain degree, you wouldn’t even be wrong.
But this assumption makes compliance a challenging and continuously reactive part of the business instead of a proactive one that can actively contribute to business stability.
Sales tax nexus and compliance are two elements of a business that multiple departments have a hand in, whether indirectly or directly. As a result, there needs to be a continuous conversation that breaks down silos and keeps every arm of the business aligned when it comes to sales tax and the operations that affect it.
But before we get to the centralized conversation that you need to maintain, let’s look at all the ways internal departments could be making your sales tax compliance team’s job a lot more intricate and complicated than it needs to be.
The cross-departmental sales tax nexus landscape
Finance and tax departments aren’t the only ones responsible for sales tax compliance anymore. Whether it’s a direct or indirect influence, multiple departments can play a hand in triggering a nexus or altering a business’s sales tax obligations.
Are your sales teams selling too well?
While it may be evident that sales lead directly to sales tax, sales teams can easily overcomplicate things when their sales activity triggers a nexus in a state that will require the company to adopt a more proactive sales tax approach in a field they had previously been able to overlook.
This can be especially problematic for service providers who had previously enjoyed tax exemption. While professional services are exempt in most states, a few exemptions exist, such as South Dakota or New Mexico (which includes professional services under its gross receipts tax). This not only impacts sales tax compliance teams but also the sales team’s ability to sell accurately and competitively in a specific state.
Has your marketing been getting the name out too diligently?
Marketing is vital to business sustainability, and companies need help staying on the top of the mind amid the flood of content and social media ads. But marketing efforts may also help businesses create a nexus footprint in areas they’d never intended.
The first nexus trigger that marketing teams indirectly influence is the economic activity nexus. The more effective the digital marketing engine becomes, the more sales will come from across various states, quickly crossing the state transaction threshold.
Also, if conferences are a big part of your marketing playbook, you should know that hosting conferences can trigger nexus in several states, including California, Florida, Illinois, Maryland, New Jersey, New York, Ohio, Pennsylvania, and Washington.
Lastly, your marketing teams can trigger click-through nexus by using in-state services that direct customers to a business or online store, such as affiliate links, banner ads, and similar mechanisms. Click-through nexus is a particular type of affiliate nexus established when an in-state marketing affiliate contracts with a remote seller for referrals, and the remote seller pays a commission for sales generated through these referrals.
Have your distribution & logistic departments started the compliance process before the first sale?
For businesses working with physical goods, distribution, and logistics play a significant role in physical presence.
While using a warehouse or storage facility in a state is a common trigger for a physical presence nexus, drop-shipments, and out-of-state couriers are lesser-known triggers that also create a sales tax nexus.
Is your HR department creating a physical presence nexus?
The remote work revolution has done more than widen the talent pool by allowing businesses to employ people from across the United States. It has also increased companies’ physical presence and sales tax nexus, as a physical nexus can be created in each state in which an employee works.
While it may be easier to keep track of these remote employee physical nexus than it is to keep track of out-of-state eCommerce sales, for instance, it’s still a compliance factor that can easily be overlooked if HR teams don’t hire with compliance in mind.
Exploring new frontiers with tax-savvy R&D
Special exemptions and tax credits are available For companies with Research & Development divisions. For instance, in New York State, utilities like gas, electricity, and refrigeration are all exempt from sales tax if used exclusively for R&D purposes. Equipment and supplies purchased for research are also generally exempt from sales tax if the purpose is clearly defined during purchase.
As a company that may be more focused on its nexus and own sales tax responsibilities, it’s easy to forget that you also have access to niche exemptions. But for these exemptions to be enjoyed, R&D departments must navigate clearly defined parameters in which purchases can be exempted from sales tax.
Keep the extended family in the loop
As a company evolves and grows beyond its initial structure, merging with or acquiring other companies and even licensing its brand to other branches, its physical presence expands to include all its satellite entities under its nexus.
Suppose the parent company does business with customers in any of these satellite destinations, especially if they’re in a different sales tax jurisdiction. In that case, all transactions will be subject to sales tax as the parent company is physically present in these locations.
Now that we’ve identified a number of the biggest departments that indirectly affect sales tax obligations (and it’s by no means an exhaustive list) let’s look at how a company can sustain a continuing conversation around sales tax and a company’s nexus points to make compliance a proactive business function instead of a reactive one.
How to keep the sales tax conversation going between departments
Here are a few easy steps to take to make sure teams are aligned:
Step 1: Appoint department liaisons or “sales tax person” for each team responsible for staying updated with sales tax issues and communicating with their team.
Step 2: Educate and train teams unilaterally on operations’ impact on sales tax obligations whenever tax laws change.
Step 3: Implement clear guidelines on nexus-triggering activities and the bounds within which departments should operate.
Step 4: Make sales tax a regular part of general business meetings and weekly business reviews.
Step 5: Centralize the ongoing conversation on an automated sales tax platform.
Centralize the conversation with Complyt
Complyt centralizes your business’s entire sales tax blueprint, making it easy for each department and satellite team to stay updated with the latest compliance checklist.
But more than just a single source of truth, Complyt is an automated sales tax dashboard that ticks every box of the sales tax compliance checklist:
- Monitor nexus in real-time
- Calculate sales tax automatically
- Collect and remit sales taxes on time
- Validate exemption certificates
- Update sales tax according to the latest legislative changes
These features make sales tax compliance a breeze, no matter how complex a company’s departmental structures get. It centralizes the foundation of an ongoing sales tax conversation that keeps every function of the business aligned with the goals and objectives of the company.
Book your free demo today to see how we can keep your team aligned.