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The Smarter Startup

Sales Tax Compliance: Steps for Startups

Startups can face serious penalties for failing to comply with state sales tax laws. If you’ve fallen behind, help is available.

One of the more challenging tax issues many of today’s startups face is state sales tax compliance. Sales tax laws vary from state to state and change frequently. Businesses are responsible for keeping up with all tax laws and paying the full amount of sales tax due to each state for each tax year.

It Starts with Nexus

As soon as your company establishes a connection with a state (nexus), you begin to incur sales tax liability with that state. A few examples of activities that impact state sales tax nexus include setting up offices, colocating servers, hiring team members, and collecting revenue from customers. Even things you may not expect, like attending trade shows and working with influencers, can establish nexus with a state. As your business grows, so does your sales tax nexus and related tax liability.

As your business grows, so does your sales tax nexus and related tax liability.

If you’ve established nexus with any state and failed to remit the required sales tax to that state, your company is out of compliance and responsible to pay the outstanding balance. This applies regardless of whether you collected sales tax from your customers at the point of sale or not.

Failure to comply with state sales tax laws is a serious violation that can result in stiff penalties for your startup. It can also lead to missed opportunities like losing a promising funding round or acquisition deal. In fact, sales tax issues are one of the most common pitfalls seen in equity funding and M&A deals right now.

Thankfully, there are programs that can help get you back on track.

Voluntary Disclosure Agreements

Most states offer Voluntary Disclosure Agreements (VDAs) for companies that have fallen behind on their sales tax obligations. In exchange for proactively disclosing unpaid sales taxes, VDAs can offer companies reduced penalties and interest, friendlier lookback terms, and the chance for a fresh start. Read below to learn about how Burkland supports startups through the VDA process.

Don’t wait for an audit, it’ll be too late.

If you have outstanding sales tax liabilities, time is of the essence. Don’t wait for an audit, it’ll be too late. In most cases VDAs are not available once an audit has been triggered.

Sales Tax Compliance Support for Startups

Burkland’s tax team has supported hundreds of startups with their state sales tax needs, and we’re here to help you with the following services:

1. Nexus Study

Our tax professionals start with an nexus analysis to determine:

  • In which states does nexus apply for any tax year(s) in question?
  • Is your company up-to-date and in compliance in all of those states?
  • If not, what is the outstanding liability in each state?

2. VDA Support

If your outstanding sales tax liability is high enough that a Voluntary Disclosure Agreement (VDA) makes sense, our tax team can support you through the process. You’ll need to file a VDA in each state where you have unpaid or unreported sales taxes. States have varying requirements, and missing or incorrect details can nullify a VDA, so expert support is recommended for most startups.

3. Ongoing Sales Tax Support

Beyond identifying and helping to resolve past sales tax liabilities, our team can help implement sales tax systems for ongoing compliance. We help our clients optimize their finance stack to ensure accurate and efficient sales tax collection, and we offer a full-services sales and use tax advisory service for startups.

Whether you’ve fallen behind in your sales tax obligations, or you’re expanding your nexus and planning for future growth, Burkland’s startup tax team is here to help. Contact us for more information.