Ben Franklin's famous quote about the certainty of death and taxes actually wasn't a comment about taxes on income. In fact, the tax that prompted his reflection was the one that ignited the Boston Tea Party—the tax on tea.

Sales, use and value-added taxes seem to have the same immortality as other taxes.While consumers complain about having to pay taxes on the food and articles they purchase, many of your clients who sell in the retail market have just as big a problem with these taxes.

Sales taxes are fairly easy to handle in the most basic situations—your client has only a few locations, sells directly from those locations (no shipping), and is using point-of-sale or accounting software, which supports user-editable rate tables.

But life is seldom quite that simple. Even in a single location, there are sales tax exemptions for nonprofits that must be documented. And even in a single county or geographic area, there can be numerous different sales tax rates, all of which must be correctly calculated, recorded and reported with the required remittance.

And the complexities are just getting started. Does your client know precisely which goods and services are subject to sales or use taxes and which aren't? A simple misunderstanding in this area can lead to substantial penalties in the event of sales tax audits, which happen with increasing frequency, as localities need greater sources of income.

HERE, THERE AND EVERYWHERE

Sound complicated? If your client thinks that determining taxing authority jurisdiction is difficult, wait until you try and explain the concept of nexus to them.

Actually, while nexus is annoying to most business owners, it isn't a really hard concept to understand. It's a legal term for a taxing authority's ability to collect taxes (in this case, sales taxes) from a company located outside the geographic borders of the authority. As strange as this may seem at first glance, it's really common with many retailers that do a significant amount of sales over the Internet or by mail order. And a client with multiple locations, some outside the state, can be subject to a bewildering number of rates and reporting authorities. Figuring out who gets what and where to send it isn't easy.

But finding and reporting sales taxes aren't the only hurdles your clients face. Depending on the locality and the amount of sales your client has, they can look forward to occasional, or frequent, sales tax audits. If your client hasn't been diligent about tracking sales, rates, and reports and remittances, a sales tax audit can be a harrowing experience.

Another area of compliance is concerned with record-keeping of a different kind. In most taxing jurisdictions, nonprofits frequently have an exemption from sales and use taxes. When the tax-exempt status of the entity is confirmed and approved by the appropriate tax authority, a sales tax exemption certificate is issued, and must be shown (or a copy sent if the sale is not face to face) when the sale is made. The seller is required to make some kind of record of this certification to explain when necessary why sales tax wasn't charged or collected. Failure to perform this record-keeping can make a sales tax audit very expensive.

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