Is Your Business Aware of State and Local Tax Standards?
State and local tax standards are constantly evolving and finding information on regulatory updates is a difficult undertaking. States are becoming more aggressive due to common budget crises, so standards are revised frequently in effort to increase revenue. This type of legislation is not always passed at one particular time but can occur sporadically throughout the year based on social or economic goals.
Where can you find updated information?
State websites are frequently updated to reflect regulation changes, but those updates will only be found if your company is proactively searching for them. Some state and local governments release annual publications prior to filing time with recaps of recent of changes, amendments and addendums. In some cases state and local governments release memorandums indicating changes in legislation and the industries that will be impacted. These are usually posted on state and local government websites.
What are the risks associated with non-compliance?
Non-compliance can certainly result in company fines and criminal sanctions, but also lost time from the prospective of the controller or finance team and even loss of revenue. For example, if your organization was not privy to tax law changes in sales tax, and continued to collect sales tax on an exempt item for the duration of time this went undiscovered, you could potentially over-charge your customers. Ramifications related to this type of oversight could be in the form of fines, penalties, interest, criminal charges and potential loss of customers if information is made available to the public.
Lost time is a major risk of not keeping present records of tax standards. If your organization was required to file in multiple states but didn’t realize until filing time, chances are you are scrambling trying to break down sales, expenses and activity by state. This is not only stressful on your team, but the time constraints will also increase the risk of filing errors.
What are some “frequently” changing standards?
Most commonly, creation of an exemption from taxability, or an incentive based credit for a particular good or service within a jurisdiction are the changes we see recurring across various jurisdictions. The impetus of this is often a social or economic initiative within that particular jurisdiction. For example, New York State and the exemptions related to certain wine and craft beverage producers, with the goal of encouraging those companies to do business in the state. Emerging technology incentives for startup tech businesses have also been timely given the rise of the startup culture and ever-changing technology uses.
State and local tax standards are always evolving, and are often times ambiguous. It’s important to have your business’ activities examined by an expert to avoid tax exposure that could lead to expensive penalties, interest and in certain cases criminal charges.