“If you’re a big buyer like contractors are, you need to have a process in place that tracks purchases, where it was used, and what you owe on it.”
Tax code is like a Hydra. When you figure out one tax code, two more have been created in its place. The confusion that surrounds tax compliance is widespread and contractors bear the brunt of the legal and financial responsibilities for projects. Staying up to date on the ever-changing codes is like herding cats, it’s a tedious task that no one wants to take on.
Fortunately, Scott Peterson of Alavara presented virtually for the ServiceTitan Pantheon 2020 annual conference for the trades and helped to demystify the complex world of tax compliance.
Here are some key takeaways:
1. Why is it so complicated to stay compliant with tax codes?
According to Peterson, states get up to 47 percent of their revenue from taxes. With so much money that states and other municipalities are dependent upon up for grabs, you can bet that everyone’s out to collect. So you’ve got to comply with city, county, state, and other district codes.
“There are too many tax laws and too many jurisdictions,” Peterson says. “There are 13,000 sales tax jurisdictions in the United States and they expect you to collect sales tax if you’re in their jurisdiction.”
2. What is an economic nexus and how does it affect your business?
The Wayfair Supreme Court case from two years ago had a huge impact on businesses and tax compliance. The court’s decision found that physical presence in a state was no longer the threshold for whether or not taxes were owed. The new guideline was if there was any presence in the state at all, not just a physical one.
“Field staff and employees are nexus,” says Peterson. “If you send folks into a state and they’re doing something for you, that creates an opportunity for a state to say to you, you have a physical presence, you have to start paying state sales tax.”
3. Tax compliance software is your best bet to manage high volume transactions.
If you’re buying your supplies and materials in bulk, you will want to be sure that you’re tracking all of your use properly in case of an audit. Buying products in one region and paying that sales tax, then using the product in a different region could mean that you still owe sales tax on the materials if you use them in an area with different tax rates.
“The new Avalara consumer use tool gives contractors the ability to run the invoices and calculate the sales tax and how your supplies are allocated around your projects,” Peterson says. “You can look at boundaries, rates, types of materials used, all of these things can be run through ServiceTitan and connected through Avalara in real-time.”