Streamlined Sales Tax: From Registration to Maintenance
Part 1: Is Streamlined Sales Tax Right for Your Business?
Although Streamlined Sales Tax (“SST”) has been around for a while, I find that many business clients are still quite confused about the SSTprogram – and whether or not it’s something they need to consider.
This blog post, the first in a multi-part series, will hopefully help businesses to not only better understand SST – but also whether or not it’s a potential fit for their business.
Step 1: Review of Current Business Footprint
So - if you’ve been wondering whether Streamlined Sales Tax could be a means to ease your sales tax process -let’s start with the obvious. In how many states do you currently conduct business? (BTW - Set your nexus concerns aside for a moment. SST is voluntary so while you will consider nexus for non-SST states before registering, it is often not as important for determining if you will benefit from SST registration.)
Generally, businesses that are already active in at least 15 to 20 states (irrespective of actual tax registrations) often find that they are best suited for SST registration. Why? It’s quite simple really. With activity in 15 to 20 states, such a business is often already registered to collect and remit sales tax in a handful of SST states. Additionally – given that level of activity, that business is more than likely already equipped to manage the technology components which will ensure the maximum benefit from an SST registration.
Alternately, businesses that are currently conducting business in fewer than 15 states may not necessarily find SST a bad fit, but they must first consider two additional factors; the nature of the current business operation, as well as the nature of their future business operation.
Step 2: Review of Current Business Operation
One of the more hailed benefits of SST is standardized product definitions that SST states adopt and use to communicate taxability decisions to taxpayers. Businesses which offer products that fall easily within SST definitions can receive immense benefit by shifting the monitoring and maintenance of the tax rules related to these items to their technology partner.
E-Commerce businesses with multi-state activity can often receive immediate benefit from SST registration given the ease (and often low cost) of integrating their billing systems into SST technology partner software. Such businesses also find it reassuring that once integrated and operational, their system will be able to calculate sales tax correctly as their activity expands into new states.
SST has made significant progress in standardizing product definitions for a number of industries. However, some businesses may find that the broad definitions offered by SST may not adequately address their sales tax needs. Businesses in specialized industries like food and beverage, rental or leasing, telecom or construction currently receive less benefit from SST.
When faced with this situation, the business often has to work with their tax technology partner or trusted advisor to determine alternate product definitions that they will use for taxability decision-making. Unfortunately for those businesses, they are not afforded the same audit protection as a business that would be using standard SST rules and thus, they receive less benefit from SST than they may have originally thought.
Further related to this are decisions for tax rules in non-SST states. Tax software does provide taxpayers with the tools necessary to manage the tax decision-making process, but what happens when your SST definitions do not clearly match those provided by non-SST states? Many taxpayers struggle to address the confusion that can arise from broad natured definitions employed by SST and its member states and the very detailed definitions for non-SST states. This confusion often needs to be addressed by the taxpayer maintaining two very distinct sets of taxability rules. In such situations, the need to maintain both SST and non-SST rules may outweigh the benefits offered by SST registration.
Step 3: Review of Future Business Footprint and Operation
While it’s obviously important for businesses to consider the nature of their current business activity, it’s just as important to look to the future when evaluating SST registration.
- Do you plan to enter into any new states? If so, how many of those are SST states?
- Are you establishing a new line of products? If so, will those products fall within the SST standard product definitions?
- Do you plan to expand into any specialized industries?
While SST registration can be an important option when considering future growth, there are situations where SST registration may not be the right fit. For example, if you plan to create a new business segment that will be seasonal in nature you may find that a seasonal permit is a better option. Similarly, if your expansion plans are modest – or if that that expansion is limited to multiple locations in few states - you may find that your compliance burden is not substantially increased – and would not therefore greatly benefit from SST.
In the end, there are a number of reasons why a company would decide to register with SST. Be they financial, technology or risk based; they are very much specific to that business and its needs. However, if you consider the needs of your business, and you work with your advisors or tax technology partner and begin to clearly answer the questions about your sales and use tax needs, the decision process of registering with SST can become more streamlined for you.
Stay tuned for Part 2 of this series: “Okay, SST is for me. Now what?”
BTW - In addition to our SST blog posts (below) - don't forget to check these other Streamlined Sales Tax (SST) resource pages on SalesTaxSupport.com:
Other recent “Streamlined Sales Tax (SST)” posts by Cory Barwick:
- Ohio SST Membership Nod: A Very Tasty Carrot Indeed!
- Streamlined Sales Tax: Will Ohio Go For $20 Million Carrot?
- Dear Streamlined Sales Tax… Where Have You Been?
- Oregon Sales Tax? Say it ain't so!
- Hey Maine! Ready to Simplify Sales Tax?