Essay on VAT and Small Business

Essay on VAT and Small Business

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Would you believe that sales tax and international value-added tax (VAT) compliance is a big reason for a seller walking away during due diligence? It shouldn’t be a surprise when you think about how complicated it is to manage your sales and value-added tax compliance when each state and country has a different set of rules and rates that are constantly changing.
The first issue that many companies fail to realize is that they may have nexus in a jurisdiction they didn’t think they did. A business may have sales tax nexus if it has a physical presence (office, warehouse, agency, employees, shipping point, etc) in a particular state. There are nuances to be careful of for each jurisdiction. For example, a state may deem you to have a physical presence even if you make regular visits there but no actual employees. Secondly, it is important to realize whether you are selling tangible personal property or a service and how each state imposes sales tax on each of those. Even though this may seem obvious, in certain types of businesses such as software or internet services, there may be a fine line. Finally, with the current state and county budget deficiencies, sales tax rates and rules are changing rapidly and it’s important to make sure you have current information. Beware also that different counties in a state may impose additional sales tax as well.
Failing to pay the correct amount of sales tax can be a large liability to your company or a buyer when they purchase your company. If a particular jurisdiction four years later determines that your company should have been collecting sales tax from the end-user, it will be up to your company to collect that back-tax from your customers or the burden will fall on your compa...

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...ay become a big concern as well.
Here are some things you can do to reduce the chances of sales tax, use tax, VAT issues:
• Use resellers if possible and get resale certificates
• Make sure all resale certificates are up-to-date
• Look through your sales and operations to make sure there is no location you could be considered to have nexus
• Check where your sales people visit frequently
• Make sure you are current with the current rates and rules in the jurisdictions you have nexus and the VAT jurisdictions you sell to
• Track out-of-state and out of country purchases more carefully
• Contact a consultant to help you through the process

Don’t let sales, use, and value-added tax non-compliance issues get in the way of your deal. Correct all issues now. Contact us if you need the names of consultants that can assist you with Sales Tax and VAT complianc

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