With varying rules across jurisdictions and frequent updates to tax codes, staying compliant on sales and use taxes can feel like wandering through a maze. However, neglecting these requirements can lead to costly penalties, audits, and reputational damage. Let’s explore the most common mistakes businesses make when handling sales and use tax requirements and how you can avoid these errors.
1. Misclassification
Misclassifying items as taxable or non-taxable can lead to liabilities or harm customer relationships. To avoid this, research state and local tax laws and consult tax professionals for guidance to ensure accurate and up-to-date tax classifications.
2. Missing Jurisdictions
Failing to register for sales tax in states where a business has a tax nexus can lead to penalties, back taxes, and compliance issues, especially as e-commerce expands. If you want to avoid this mistake, identify where you have a physical or economic nexus, monitor economic nexus thresholds in each state, and register promptly with tax authorities.
3. Incorrect Calculations
Errors like using incorrect rates or misapplying tax rules can lead to undercharging or overcharging customers. It may also result in fines during audits. Be sure to use updated tax rate tables, arrange for regular audits to ensure compliance, and consult with a tax professional for guidance.
4. Late Tax Returns
Missing sales tax filing deadlines can result in fines, interest, and other penalties. You can avoid late filings by setting reminders, filing returns early to address potential issues, and outsourcing tax management if in-house resources are insufficient.
5. Inaccurate Tax Records
Missing or inaccurate records may lead to penalties. Maintain detailed sales records, digitize documentation for easy access and security, and regularly review records to catch and correct errors. Accurate and organized record-keeping is vital for compliance and audit preparedness.
Get Professional Tax Help to Avoid Penalties
If your business is struggling with sales and use tax compliance, a reliable tax attorney can help. At Gabaie & Associates LLC, we help business owners in Baltimore, Columbia, Frederick, Rockville, and across Maryland navigate complex tax requirements and resolve state and federal tax issues.
Call us at (410) 358-1500 or fill out our confidential contact form to schedule a consultation and ensure your business is on the path to tax compliance and success.
