Tuesday, July 14, 2009

Opening Up the Can of Worms

So you decide that you need to register in another state. Believe it or not, there are a few reasons why you might want to do this:

1. You actually have nexus in that state and you'd kind of like to obey the law. Right.

2. You have a big, gigantic customer who insists you collect taxes from him for your deliveries into another state.

3. You decide that registering in that state would be a good way of solving your Nutty Drop Ship Law problems.

4. You are dealing with a government agency in a state that requires you to be registered for sales and use taxes in order to bid on their business (more and more are doing this).

Well, be careful. You are opening up the proverbial can of worms.

There are several problems:.

1. You 'll be filing more returns. More work. More cost. Maybe you'll finally have to buy that sales tax software you've been getting the mailings about.

2. You'll attract the attention of the state you're registering in. Not only might an audit be imminent, but they will probably want to talk to you about all the other state taxes that you might owe, like income taxes, franchise taxes, occupation taxes, etc.

3. You'll lose a competitive advantage, depending on your market. If your customers buy from you, at least in part, because you're not charging them tax, then by registering, you'll lose some sales. Your sales and marketing people will hate you. They already hate you, it'll just be worse.

4. If you've been selling into the state for several years, you have an open liability going back all the way. Most states have no statute of limitations protection if you've never filed a sales and use tax return, which you obviously haven't. So beware!

I'm not saying you shouldn't register if you need to register. But recognize you're opening a can of worms and you need to get professional guidance.

Sales Tax Guy

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Picture note: Sorry, just clip art. I don't fish, so I just haven't had the opportunity to photograph a big, steaming can of worms. Maybe someday.

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