With April 15 behind us, many business owners view this as a chance to set aside thinking about taxes for months. While they will pay their quarterly estimates and work with their CPA to address any notices they receive, these business owners welcome the opportunity to not think about taxes until next year’s busy season. When next year comes around, they will do the same as they have done annually and continue the ongoing cycle.
However, the wise business leader will see this post-tax season time as an opportunity to reflect and determine whether how they have handled taxes in the past is how they should continue for the future. For a growing business, this reflection is especially important in the realm of state taxes, particularly income tax and sales tax.
To help the wise business leader reflect, we suggest you ask yourself the following questions.
Did my current preparer ask me for sales by state information for all states, or only the states in which we’ve filed in the past?
Without full sales by state information, it is not possible to determine all the states in which you may have income tax or sales tax filing obligations. The days of filing obligations only existing if you have physical presence in a state are gone, and you may have unknown exposure if your preparer is not reviewing your sales by state each year.
Did my current preparer ask me for both payroll by state and the activities of the employees outside my home state?
It can be costly to presume that having an employee in a state automatically makes your business subject to income tax. For many businesses, that determination cannot be made without knowing the activities of that employee. If their job requirements are limited to certain sales activities, you might be exempt from income tax in that state.
If I sell products, did my current preparer ask whether any of my inventory is at locations other than my own facilities (e.g. third-party logistics/fulfillment providers or consigned at a customer location)?
Sellers of products are increasingly placing their inventory in the hands of third-party businesses to ensure faster and/or more cost-effective fulfillment. Yet, this operational decision comes with significant state tax burdens and costs, which are often not considered until it is too late. With very limited exceptions, this will cause your business to be subject to both income tax and sales tax in the states where inventory is located.
Has my current preparer talked to me about voluntary disclosures for any unpaid taxes?
When it is determined a business has an income tax or sales tax filing obligation, it should also be considered whether there are past exposures for which action should be taken to lessen those amounts. Simply starting to file a tax return in a new state can leave you exposed for years while a voluntary disclosure can address the past exposure proactively, decreasing the number of years exposed and allowing for relief from penalties.
If you find yourself answering “no” to any of these questions, you may want to consider whether your current tax preparer is the right fit for you moving forward. Our team of trusted advisors at RKL has the multi-state tax expertise to address any state where you do business. Contact an RKL advisor using the form below to help plan your tax strategy throughout the year.
