Sales tax compliance should be a priority for direct selling businesses. Small compliance errors can lead to big problems if they aren’t quickly found, exposing sellers to risk. The point of direct selling ventures is, after all, to sell. However, the more you sell, the more likely you are to run afoul of some obscure sales tax law as you expand your product catalog and sell into new markets. If state tax agencies find you out of compliance, your business could face significant penalties and interest on delinquent taxes.
So how can you rapidly grow your business without rapidly increasing your risk of exposure during a sales tax audit?
Here are four tips for doing exactly that.
Be vigilant: stay compliant where you sell now.
This may sound easier than it is. Sales tax laws change: something that is exempt in February 2014 (like storage services in Minnesota) could be slated to become taxable in April 2014 and then, at the final hour, be made exempt again. In addition, product taxability rules can be incredibly complex: wheat germ is exempt in California unless it is labeled as a food supplement or the equivalent of a food supplement, in which case it is taxable. And sometimes the order of ingredients on the label is what differentiates a taxable product from an exempt product; it is the first ingredient that distinguishes taxable confections from exempt grocery staples in Maine.
Make sure you audit your current sales tax liability, so that you have a solid foundation of compliance from which to grow.
Be flexible: be ready to charge tax wherever you go.
Direct sellers need to be like professional athletes—poised and ready to take any opportunity that presents itself. That requires flexibility. How soon could you be ready to take advantage of sudden sales opportunities in California or Florida? Sooner than you think, if you have a sales tax management system that will quickly and efficiently apply the proper tax rate to each product in each new jurisdiction.
Be efficient: put your energy where it is needed.
Direct sellers must be able to focus time and energy on keeping current clients happy, expanding into new markets, and/or developing new products. Manual sales tax compliance is a tedious, time-sucking activity. Don’t let it sap the zing from you or your company: embrace a sales tax management solution that automates key compliance tasks, so you can spend time focusing on growth.
Be smart: choose a system for sales tax compliance that will grow with you.
The last thing direct sellers need to worry about is sales and use tax, and yet that is one of the first things auditors will examine when they come knocking. You don’t need to be afraid to open the door. You just need to implement a sales tax management system solution that can scale with you as you grow, easily adding new products, markets, and greater transaction volumes into your compliance process.