Selling wines and other goods comes with a myriad of challenges. Chief among these is the task of collecting sales tax – coupled with tracking, reporting, and remitting it when necessary. Even if you contain your sale of wines to a small, local area, you may come up against shifting sales tax percentages.
The root of sales tax compliance is understanding your sales nexus, or where you’re required to keep track of and pay taxes. However, companies must also contend with meticulous record-keeping and complex payment schedules. Failure to document sales tax and report it appropriately can result in heavy fines. Read on to learn more about compliance and how Protea can help.
Sales Tax Nexus Explained
What is a sales tax nexus? The word nexus is Latin for “to bind” – so your nexus defines the local and state jurisdictions that your company is bound to. The sales tax nexus encompasses all the locations where you’re required to track, collect, and remit taxes.
The first step to determining your nexus is laying out the areas where your product is sold. This is the easiest part of the process, as this information is readily available for businesses that keep proper records. However, your actual nexus may extend far beyond the cities and states where your wine is sold.
If your wine is produced and bottled in another zip code or state, you have to account for their sales tax code. Perhaps your executive staff and managers work at an office in a neighboring town – that must also be accounted for. The same is true for all warehouses, pop-ups shops, or merchandise you ship to your customers.
Nearly every part of conducting business can bind you to different taxation area and increase the size of your nexus. As you can imagine, it’s difficult for businesses to accurately keep track of the taxation requirements for these areas. Read on as we look closer at the challenges of collecting and remitting taxes.
The Challenges Of Managing Sales Tax In Your Nexus
Many businesses in the beverage industry and beyond struggle immensely with defining their nexus. It becomes even more difficult as you determine the different rates of taxation. Keeping in mind that your wine-tasting room is equivalent to a retail environment, cross-state and e-commerce tax requirements quickly build.
What some company leaders fail to anticipate is how niche certain tax zones are. For example, some businesses might assume that they only need to file for state taxes but neglect to follow county or city codes. Oversimplification often leads to non-compliance, which isn’t likely to be excused due to a lack of understanding.
A similar mistake is depending on zip codes to figure out taxation rates. Though it sounds good in theory, it’s not uncommon for multiple boundaries to be drawn within the same zip code. Misunderstanding your tax zone by even one street could result in fines and other disputes.
These issues only encompass how you determine your sales nexus accurately. The process for tracking and filing those taxes is a separate step that requires even more attention to detail.
The Challenges Of Managing Sales Tax In Your Nexus
In addition to sales tax, your business may have to collect and remit excise taxes. An excise tax differs from sales tax in two major ways. First, excise taxes are only charged on specific products sold in the United States, which includes alcohol. These taxes are levied on a federal level and occasionally the state level as well.
Second, wines and other alcoholic products are charged excise tax by the unit. Most business pass on this financial responsibility to consumers by including it in the total price per bottle or case. You are required to collect these taxes from the consumer, track them, and then remit the funds to the IRS on a quarterly basis.
Recording And Tracking Sales Tax Collection
Companies looking to maintain their sales tax and excise tax compliance must keep careful records of their taxation.
All channels of income and tax zones have to be carefully tracked, aggregated, and compiled. The bigger your business is, the more challenging it is to do these steps correctly.
One benefit to outsourcing your sales tax bookkeeping is that we have automated systems equipped to track all related information. Tracking by hand guarantees error. The same is true when business leaders who aren’t experts in bookkeeping software try to create their own automation.
Automated tax tracking becomes even more important when it’s time to file. Sales tax filing is typically predicated on the volume of sales, while excise tax is based on each unit of wine you sell. Then you have to contend with your nexus and the range of filing times to comply with.
Filing, Prepayment, And Remittance
Filing across state lines might put you on several different tax schedules. Some jurisdictions will even require you to prepay an estimated amount of tax, which should be carefully set aside and monitored in a dedicated account. Excise taxes must be remitted four times per year. Failure to do so could result in unexpected budget shifts at the last minute, in addition to financial penalties.
Too often, businesses also collect sales tax in areas where they shouldn’t. Working with bookkeepers can help catch these kinds of mistakes when they happen. A tax professional can also help you determine if you need to remit any sales tax back to the jurisdictions in your nexus.
Get Off On The Right Foot With Protea
Our team understands the massive burden sales tax filling represents to your organization and is fully prepared to bridge that gap for you. Protea will keep your organization compliant year-round. We’ll use our expertise to break down your sales nexus and expectations federally and from state-to-state.
You can rely on our bookkeeping and accounting software to ensure that you’re prepared to file on time. Protea will keep track of your records, estimate prepayments, and keep you informed along the way. When it’s time to file, your CPA will personally ensure absolutely sales tax and wine compliance.
Reach out today to speak with a member of the Protea team. We’ll be happy to answer any questions you have and discuss how our experts can alleviate the stress of filing.
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