Importance of Corporate Tax Compliance
Every company, regardless of size, must file returns and pay taxes federally and in every state where it operates, including its home state. Additionally, companies may need to collect and remit taxes paid by third parties to the government. Ultimately, specific requirements depend on the business activity, location, and other factors.
However, many businesses overlook the need to register for tax collection and remittance. Consequently, failure to register can lead to fines and penalties. Moreover, each jurisdiction has unique regulations, so understanding the relevant rules is critical. Importantly, this applies equally to online and home-based businesses. Specifically, operating solely online does not exempt a company from local taxes.
On the other hand, registering to collect taxes you don’t owe wastes time and money.
Tax Systems You May Need to Collect
- Sales Tax: States levy this on retail sales of tangible goods, services, rents, entry fees, and certain intangible items like food and beverages.
- Unemployment Tax: Employers fund unemployment compensation and related programs through this mandatory payment.
- Use Tax: This levy applies to the use, storage, or consumption of tangible personal property, often complementing sales tax.
- Income Tax Withholding: Employers in states with income tax must deduct this amount from employee wages.
Challenges with Registration
Keeping registrations current presents an ongoing challenge due to constantly changing regulations.
- Sales & Use Tax Complexity: Rules vary significantly by state and even county. For example, Arizona’s Department of Revenue collects most county and municipal levies, but many major cities manage their own collection and administration.
- Payroll Obligation Complexity (Unemployment & Withholding): Hiring staff creates multiple fiscal duties. States define employment differently, complicating calculations for unemployment and withholding. Identifying the correct application process isn’t always straightforward, and each state has its own procedure for payroll registration.
Other Registration Considerations:
- Finding current information online can be difficult due to the volume of data.
- Selecting the correct registration forms is essential.
- Submitting applications in the proper format, at the right time, and to the right place is crucial.
- Tracking application status ensures you stay informed.
Tax Compliance Advice
- Choose the Right Legal Structure: Selecting the appropriate legal form for your business is the first step toward meeting your obligations.
- Register and Pay On Time: Ensure timely registration and payment. Late remittances incur extra costs and penalties. Voluntary registration signals commitment to compliance but should only occur when necessary.
- Maintain Meticulous Records: Keep thorough, accurate, and current documentation. Good records are vital for resolving future issues.
- Understand Employee/Vendor Implications: Misclassifying employees as contractors can create significant financial problems, including back payments owed. Correct classification saves money. Understand the Affordable Care Act and Department of Labor overtime rules to classify workers accurately.
- Plan for Estimated Payments: Prepare for expected remittances to avoid unnecessary penalties. Use conservative estimates to ensure funds are available when due.
- Consult a Professional: Work with a qualified expert to stay current on inconsistent and ever-changing state income and withholding requirements.
Conclusion
Maintaining corporate tax compliance doesn’t need to be difficult. The most effective way to ensure proper registration is to partner with an experienced compliance provider. Such a partner offers services like tracking regulatory changes, submitting correct applications on time, and providing status updates and confirmations.
