Researchers generally agree that you must spend 10,000 hours doing something to become a true expert on the matter. If you’ve spent 10,000 hours in your industry, you probably agree. Every member of our professional staff has over 10,000 hours of sales tax experience and we all agree on the best piece of advice we can give you: keep better records! Keeping records is so important that we wanted to start off 2023 discussing recordkeeping, as we have done every year since 2018.
Why do you need to keep better records?
If you can document a transaction or exemption or payment, you can more or less prove it. When you can’t document it, you’re leaving it up for debate. You work hard on your business; do you really want to debate something with an auditor, someone being paid to assess tax, when you simply could have kept a piece a paper?
What sales tax records do you need to keep?
Keep sales records that specifically describe what is being sold, where the product is being sold (or where the service was provided) and separately list any sales tax that was collected. You need to obtain and maintain exemption certificates that your customers give you. Don’t forget to keep documents like tax returns, bank statements and General Ledgers. These should be keeping these for a variety of business reasons.
How to keep the records?
A seemingly obvious part of record keeping that often becomes an issue is that you need to actually keep the records. Records that are not available when you need them are useless. In today’s technology-heavy, post-shutdown world, you likely have the ability to scan records. Scanned records take up minimal space, as hard drives are small. The cloud exists, so there’s no excuse – scan your records! And like most things in life, backups are key.
If you prefer to keep paper records, or your point-of-sale system only provides paper records such as register tapes – keep those records safe. Records kept in flammable boxes in the mildew covered corner of a basement, underneath a rotting water pipe, is not an ideal spot to keep paper records. Trust us – after more than 10,000 hours of time spent on sales tax audits, sometimes truth is stranger than fiction. Records can get destroyed countless ways, do what you can to keep them safe!
Additionally, since use tax can’t be ignored, keeping records also means keeping purchase records. If you make a taxable purchase, you need to prove you either paid sales tax or self-assessed use tax.
Keeping records is important for any sales and use tax audit, including for the potentially costly recordkeeping penalties that the Tax Department can impose. If you have questions about starting to keep records, the records you currently have or the records you kept in the past, call us! We’d love to help you make this year the year you started keeping the right records!
Sales Tax Return Preparation Assistance
Our client, a national contractor, files returns in every state that has a sales tax. In the State of Washington, the return also includes a section for business and occupation tax. The client had been correctly reporting their sales using two different business and occupation tax classifications but was reporting their exempt sales using a code that was not allowed for those classifications.
After Washington’s Tax Department contacted the client, the client contacted us. The client didn’t understand the issue. We were able to explain the issue to the client and work with the client to figure out that they were using the wrong exemption reason.
As a result, the client was able to amend their prior returns to satisfy Washington and correctly report their exempt sales going forward.