Taxing Business Problem
By Tony Burton, [email protected]
Tax season is upon us and retailers are aiming to get all of their ducks in a row. Yet, there are a number of complicated tax issues that are difficult for retailers to manage and many will be worrying about audits and penalties after they have filed. During an audit, numerous U.S. retailers discover that inaccurate or outdated geolocational data has led them to take too much or too little tax on customer payments or employee withholdings.
Businesses, particularly retailers who often bill customers in different states due to an online sales component, struggle with the challenges of accurate tax assignment on a daily basis. For example, if a special tax district or municipality’s boundary moves in any direction it could have important tax implications. As a result, it is not unusual for a retailer to under-charge a customer based on geographical info that puts them in the wrong tax jurisdiction, leaving them with a shortfall when the auditors calculate the amount due. This shortfall can come to millions of dollars and threaten a business’ very survival.
Too often the software and processes used by a retailer’s tax department are outdated, causing these inaccuracies. Additionally, verifying customer’s precise location and tax jurisdiction is difficult, given constantly changing tax jurisdictions and new requirements mandated by state and local laws further making it hard to keep records current and accurate.
There are several, crucial proactive steps that retailers need to take in order to protect themselves during a prospective audit:
1. Calculate the sales tax requirements for all sales locations
This is particularly important for retailers that sell goods or services online. Traditionally, it has been a consumer responsibility to declare out-of-state Internet purchases and pay use tax, an impractical process to date. As a result, states are moving to place the burden on the seller and many businesses have voluntarily signed up to aid in this effort. In fact, congress is currently considering federal law changes that will mandate sellers to collect sales tax.
2. Don’t rely on the postal system for establishing tax rate
Many retailers use the postal system to verify addresses and establish the rate payable for various taxes such as sales tax, payroll tax and personal property tax. However, the postal system was designed to deliver mail not determine taxation and the postal boundaries do not align with the taxing areas. Also, a number of premises are not assigned postal addresses, often leading to miscalculations. Companies need to access and upload a verified tax code provider list in order to manage each location.
3. Closely track any mobile assets to establish their whereabouts
Retailers must establish the location of all their mobile assets. Items such as vending machines are taxed and often audited according to their exact location on a given date. A company’s capability to track their mobile assets closely can save significant time and money.
4. Undertake a detailed assessment of the location where an employee is working at all times
It is crucial to establish where employees work and live in order to apply the correct tax withholdings. Some states like Ohio and Pennsylvania have highly complex rules for payroll tax based on where people are living and working. If an employee splits their time between multiple office locations, even within the same state, this can have a dramatic impact on the rate they must pay.
5. Calculate all of the above on at least a quarterly basis
Don’t wait until you are in the same quarter as tax deadline day to start scrambling to organize the accounts and check geolocational data. Make this a regular habit and, at a minimum, carry out a thorough update process on a quarterly basis.
Navigating the highly complex geographical component involved in various tax calculations is no easy task. Still, retailers require accurate data for customer billing in order to reduce the risk and regulatory liability associated with customer tax jurisdictions.
Businesses, especially online retailers, should have the reassurance that their firm is using the most up-to-date data and procedures to determine the correct tax application. Consequently, proactive management of geolocational tax issues is an excellent best practice that can help retailers’ overcome the complications that come with customer and staff tax procedures and immediately deliver cash to their bottom line.
Tony Burton, is GeoTax Product Manager, Pitney Bowes Software, which provides multichannel solutions that leverage data to create relevant dialogue between organizations and their customers. These solutions enable lifetime customer relationships by integrating data management, location intelligence, sophisticated predictive analytics, rules-based decision making and cross-channel customer interaction management to increase the value of every customer communication while also delivering operational efficiencies. Click here for more information, please visit .
Burton can be reached at [email protected].