Can you spare a dime? Automated solutions ensure sales tax compliance.

• Author: Dibello, Diana

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WHY SHOULD CPAs BE CONCERNED ABOUT SALES TAX?

Since sales tax is a pass-through tax, accounting professionals and business owners may give it less consideration than state and federal income tax. However, the risks associated with failing to comply with sales tax laws should not be underestimated

Sales tax typically represents one third or more of a state's revenue. According to 2007 rates from the Federation of Tax Administrators. Washington, Nevada, Florida, and Texas generate more than 50% of their income from sales tax. Ohio is near the lower end of the scale with 31.5% of stare revenue derived from sales tax.

To minimize the risks and avoid the sales tax audit, compliance must be addressed. It is likely that your company or your clients are filing returns and paying their fair share--but are you confident they are complying as efficiently as possible especially considering the somewhat complicated state-by-state requirements?

COMPLEX BOUNDARIES AND RULES

According to 500 CPAs who participated in The Ohio Society of CPAs' annual Ohio Business Poll in November 2008, the national economic crisis, combined with state-specific factors, will inhibit business growth in Ohio until the last half of 2009 or the first half of 2010. Specifically, 50% of respondents cited Ohio's tax climate as a major concern.

"One of the challenges with sales tax compliance is that every state has developed its own set of rules independently of any other state," says David M. Reape, CPA, tax senior manager for Ciuni & Panichi in Cleveland and chair of OSCPA's Tax Policy Committee. "While there are many common concepts, such as tangible personal property sold at retail versus sale of food, significant differences also exist. These differences can make compliance very difficult for small and mid-size businesses."

According to Reape, just figuring out what rate to charge can be confusing. Ohio's 88 counties can each assess a sales tax in addition to the state base rate.

"The result is you have 88 different taxing districts to be concerned with just for one state," he says. "Multiply this out by all the states that assess a sales tax, then consider that some states allow cities as well as counties to assess a sales tax. You end up with literally thousands of taxing districts!"

CPAs and their clients must understand several concepts. First, there is "nexus." Among other activities, if a company has a "warm" body--sales people visiting the state...