5 Things Business Owners Should Know about State Taxes

Posted by Stephanie Thomas, CPA on Aug 9, 2018 2:15:36 PM

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When you are a business owner, there are a million things that you must understand to run a successful business.  Understanding your state tax responsibilities is normally not high on your radar.  While every jurisdiction is different, there are questions that all business owners should ask about state taxes.

  1. Am I required to register my business? If you have nexus, the answer is “yes”.  Nexus is presence in a jurisdiction.  There are different thresholds for different types of taxes.  For example, you may have nexus for state income tax, but not sales tax.  It is important for you to understand the types of state taxes your business may be subject to and if you have nexus in a jurisdiction.  The threshold for nexus varies from state to state. For more information about nexus, click here

  1. How do the tax laws affect my business?  The tax treatment of goods and services can be complex. The key is understanding your business. Are you selling goods? Are you selling a service?  Is what you are selling taxable? How does your invoicing affect your tax responsibilities? What is the taxability of your offerings in all of the jurisdictions in which you have nexus? Are the goods  and services that you purchase taxable? Here is some more information about researching taxability

  1.  How do I report tax to the taxing authority? When you register in a jurisdiction, the taxing jurisdiction will normally offer guidance regarding their tax reporting requirements. But before you can report tax, you must register with the correct tax agency and understand how to calculate the tax due.  That means understanding what the taxable base is, the appropriate tax rate, how to report use tax, what documentation you need to substantiate your nontaxable sales and what tax exemptions are available.

  2. How do I know what I am doing is right? That is the million-dollar question. Reporting and collecting tax can be nerve wracking.  If you don’t understand something, ask questions. Contact the applicable taxing jurisdiction, review the Tax Code and tax publications, ask others in your industry, contact a sales tax professional, etc. The onus is on you as the business owner to comply with applicable rules. It is your responsibility to know how the tax laws affect your business.

  3.  What is the statute of limitations? For most jurisdictions, the statute of limitations for sales tax is 3-4 years.  However, that can be extended if your business never registered or if there is fraud. You should retain your documents for at least 3 years, depending on the jurisdiction.  Keep in mind your business may also be subject to withholding taxes, corporate income tax, etc. You should make sure that you know what the statute of limitations is on all the tax types that you must report.

Those are the questions that you must ask before you can begin to address your state tax responsibilities.  It can be challenging and a little scary. But there are resources available to help you. It is better to ask these questions before you receive a Notice of Routine Audit or a notice from the state asking why you have not registered.  If you need additional information, please contact us.

Topics: Sales Tax, Use Tax, sales and use tax, State Tax, Business Owners

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