Sales Tax
Sales Tax

Don’t forget your clients’ sales tax yearly wrap-up

Read the Article

It’s that time of year again! Thanksgiving! Christmas! Hanukkah! Kwanzaa! New Year celebrations! Then … yearly close and tax filing season!

As we all prepare to close out the year, there are a few things that are usually overlooked from a sales tax perspective. This information only applies in states that impose a sales or use tax, or the equivalent, so for some of your clients, the following points are moot.

For the rest of us, these issues are typically uncovered during routine audits conducted by state taxing authorities—and don’t they usually occur at the worst possible time? As part of the year-end activities, don’t forget to help your clients with the following areas.

Sales levels

When clients are getting ready to report their gross sales to the IRS and the state tax authority for corporate income tax or franchise tax purposes, as appropriate, make sure that the gross sales levels reported via the sales tax returns reflect the same level of sales. If not, record the differences. There are valid reasons the numbers may not be the same. Record the reasons. You or your client may be required to explain the differences years from now.

Adjusting journal entries

It’s normal to make adjusting journal entries (AJEs). Things happen and books need to be corrected, but before you make an AJE, you must document and understand why the entry was made. This is a great business practice—and it has become imperative for a not-so-new reason: Auditors are now questioning the AJEs when they impact accounts of interest during an audit. If you can’t prove to their satisfaction that a change to an account reflects a nontaxable event, your clients can expect to pay tax. This applies to all AJEs, including entries made to correct account balances and close the books.


When reviewing company expenses, make sure your clients have receipts that show sales tax was paid on taxable purchases. If the vendor did not charge sales tax for any reason on a taxable purchase, make sure use tax was reported to the tax authority. This is a counterintuitive year-end activity that is imperative, and It is easier to do the review when you have the documents readily available. If documentation is insufficient, it is easier to secure the data closer to the transaction date rather than later. Most people throw things out or lose access to “old” data. The complicating factor is some people have an aggressive view of what is “old.”  In addition, computer conversions can obliterate audit trails on your client’s side and the vendor’s side. If you can’t prove that tax was paid or that a transaction is not taxable, the client is liable for the tax.


The perfect time to document yearly activity is at the end of the (fiscal) year. Your clients are responsible for maintaining all records and data a tax authority needs to conduct an audit for the applicable statute of limitations. If you don’t know the statute of limitations in every jurisdiction in which your clients do business, find out! The statute of limitations for sales and use tax is typically three to four years, absent a finding of fraud. Sales tax collected, not remitted, is a fraud! Your client’s filing frequency impacts how long they must retain documentation. Note: Year-end activity may be at the end of the calendar year or the end of the fiscal year when they are not the same.

Sales tax accrual account

Review this account to make sure it shows that all tax amounts recorded in the account were remitted, or there is a valid reason that amounts were not paid. Some amounts may not be remitted due to the correct application of discounts. In addition, make sure all credits are appropriate. A credit, depending on whether you client is an accrual basis or cash basis taxpayer, may be due to bad debts or any other number of reasons, including a mistake.


The end of the year is typically a good time for you to gauge whether a client is going to trigger economic nexus in the upcoming year, if physical nexus has not been triggered. States have different sales thresholds for requiring companies to register to collect use tax. There are also different deadlines by which companies must register to collect use tax. But it is possible to look at sales levels by state and gauge that a registration requirement is imminent, research the registration deadlines, closely monitor sales levels, and timely pull the trigger. If your clients are a little late, a state tax authority may waive the penalty. If not, the related amount may be de minimis and not of concern.

Be your clients’ sales tax advocate

Remember, sales and use tax is a silent assassin. Most people don’t think about it until they get a notice of audit—or worse, a really big, unexpected tax bill. Take a little time to really look at this area or bring it up to your client. If the client decides to ignore it, that is their decision. If it comes back to haunt them and they say, “I relied on you to cover this. What is going on?  Did you not do your job?” You can pull up your series of emails every year and say, “Yes, I did.”

Comments are closed.