December 19, 2019

Working with Sales Tax Specialists When You Have a CPA

Getting compliant with state sales tax requires informed counsel. Somebody that can help identify your nexus and what you should be paying. Somebody more specialized than your CPA. In this post, we’ll look at why you need both.

Certified Public Accountants – CPAs – are the backbone of the accounting services industry in the U.S. If you run a business, you likely have a CPA to help you with tax preparation, income tax and more. But despite this wide range of expertise, there’s one type of tax that accountants rarely touch: state and local sales tax (SALT).

Why Most CPAs Avoid Sales Tax

In our experience, we’ve found that most CPAs intentionally steer away from touching sales tax. Often, they have some understanding or interest in it, but most CPAs avoid taking it on as a full part of their practice. A common explanation: “I’m so busy with everything else I’m doing that I just can’t get up to speed on that!”

Because of this, a high percentage of CPAs know sales tax is a complex and serious issue. But they have little knowledge or background in it. They don’t have the time. Plus, when you consider how rapidly tax codes change and how many regulations you have to stay on top of, it makes sense why CPAs wouldn’t provide sales tax services.

State sales tax is not some easy specialty to tack on. It’s always been complex. But over the last few years sales tax has increased with respect to the nuance and rate at which regulations change. Since South Dakota v. Wayfair, nexus thresholds, policies and amnesty programs change constantly across all 50 states. Because of this, CPAs often collaborate with sales tax specialists.

A Sales Tax Analogy

The relationship between CPAs and sales tax specialists is similar to medical care. The average person has a primary doctor that they trust for most general health concerns. But if you need specialized treatment, they’ll recommend you to a specialist. Because that’s what is best for your health.

In the world of taxes, CPAs are experts at ensuring the financial health of your business. To better fulfill this role, many CPAs are establishing partnerships or referral efforts to connect their clients to SALT specialists. All to protect clients from the vulnerabilities of sales tax liability.

Why You Should Ask Your CPA About Sales Tax

Not acting on sales tax is the biggest tax risk your business faces. An unexpected audit or latent unpaid liability can suddenly emerge, crushing margins and eating into cashflow.

We’ve seen acquisitions crumble when a rogue nexus bill emerges before the papers are signed. It’s also common for unexpected liability to crush margins during the close of a quarter.

Imagine you should have collected tax at the time of the sale but didn’t. When the state(s) comes by later to collect, you’ll have to comply with penalties and interest. If you don’t have cash reserves, you’ll have to foot the bill out of pocket. This works against your top line revenue and slashes your margins. It can be a company killer.

Because of this, everybody who has customers in multiple states needs a nexus review. You need to understand what your responsibility might be or what exposure might be out there. Doing so is critical to securing the financial health of your business.

Conclusion: What’s Next?

If you suspect you might have sales tax liability in one or more states, here’s what you should do:

  • Reach out to your CPA.
  • Reach out to a sales tax specialist. Got SALT Problems? We can help. Set up a free consultation today.
  • Learn more about state sales tax. The first step towards compliance is understanding how it works. Here’s everything you need to know about economic nexus.
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