However, as states become more aggressive and change sales tax laws, more customers are notifying us after a sales tax audit that we need to collect sales tax. When this happens, I have found the Internet to be a one stop shopping point for my initial research.

I never trust what the customer tells me about their state's sales tax collection. I want to read the actual published information from the state so that I can make sure I collect the correct amount and transmit it in a timely manner. Additionally, I want to make sure and find out if services and products have different rates. For example, a common question to ask is: "If I ship the goods to the customer and I bill the customer for the shipping, do I collect sales tax on the shipping charges?"

The best place to start is a search engine. Just type in "sales tax" and the state name. Typically I get a list of sources. Many commercial sites have links to all the fifty states. The starting off point I often use is www.taxsites.com. It is a site maintained by a college professor and I have had really good results clicking on the State and Local Tax button, then clicking on the state I need information on. For the purposes of this article, I will use the state of California.

It can take some browsing to find the information you are looking for. Although most states will have a Sales Tax selection, California calls the department that collects sales tax the State Board of Equalization. A click on that heading brings up a wealth of state tax information, including rates and regulations.

I like to either order or print out the state's actual sales tax regulations for my permanent file. It saves time to have the information close at hand when I have questions, so I do not have to return to the Web site to look up the answer.

Unless the instructions are brief, only print out the relevant pages. In some states the instructions are so large they must be ordered. Typically, the site will feature a phone number for ordering forms or instructions directly. If a phone number is not present, look for a selection like "Contacting Us".

For California it is possible to print out the instructions for the form and the actual form. I then selectively read through the online compliance policy and procedures manual and printed out a few key pages.

Sometimes customers will provide misinformation about the tax rate or the county the business is in, so I always look to see if different jurisdictions in a state have different sales tax rates. If they do I try to find a county listing with cities in their jurisdiction and print it out.

I also like to print out a listing of what is taxable and what is not taxable. As states become more aggressive in their taxing more and more things are susceptible to tax. Contractors in some states now have their materials taxed in some circumstances. If services are not taxed and goods are, and a company produces business cards, what portion of the business cards is taxed? Questions like these can be a challenge to answer.

My next step is to read the documents thoroughly and highlight items such as tax rates, due dates, phone numbers and other pertinent information. Again, this makes it easier to find answers to questions later, so it is not necessary to re-read the entire set of instructions.

I customize the reports for sales tax on a computer, setting up a separate report for each taxing jurisdiction. I also set up goods that are taxed separately and indicate by the description what it is. Currently we have two types of taxes: products and services.

Then in the general ledger, I set up a separate taxing liability account for each state. I put an abbreviation of the state in the title and I note frequency (M for monthly, Q for quarterly and A for Annual). This makes it easy to ensure things are reported in a timely manner. I set the 10th of the month to do sales tax reporting and with this system, I am assured of meeting all my deadlines.

In some states it is necessary to file a registration form to be able to pay sales tax in that state. I have found it difficult to find the registration forms for a few of the states. Some states will return payments if they do not receive the registration form. I carefully look in the instructions to see if there is a reference to needing to file a registration form.

When I am ready to file a return, I always make a working copy of the form. I print out hard copies of the information in my system and attach these to the working form in my file. If the state audits me, I have documentation on the sales tax paid.

If I have a return, I put a copy of the sales credit memo in the file as well. I print out the total sales in that jurisdiction, as well as a report that shows the sales, taxable sales and sales tax collected in the jurisdiction. I attach a copy of these reports to my working copy of the report I will file and fill out the form, highlighting the key numbers on the form and on the source documents.

Sometimes we sell something and collect sales tax on an item that is a one-time occurrence. In such a case, I write a letter to the taxing authority, stating this was a one-time sale that we collected sales tax on. I attach a copy of the invoice and give my phone number, email address and fax number in case the person has questions.

Our company has a place in our computer to keep track of sales tax exempt numbers. We keep this on the customer card. Next to the customer card I have added a customized feature that tracks the day I input the sales tax exempt number. I have written a simple report that prints out all customers whose sales tax input date is more than one year old.

I have also been using the Internet to determine the time frame a sales exempt certificate is valid for. I visit each state's location to either find that information, or a phone number to call and ask.

Our company is also going to conduct an annual review to make sure we are in compliance with all fifty states. Each year we will review the report to make sure we have current certificates. In some states the certificates are permanent and in other states they have to be renewed. The report I mentioned earlier can be printed out by state and that would help our company to keep current.

We have written a standard letter that we mail out to customers when we need to get their original information or update the current information we have. Additionally, we keep these certificates filed by customer number in a secured permanent file.

Lastly, we keep all of our sales tax information for seven years in permanent files. We file these by the state name and then the agency name for that state, with the oldest information in the back and current information to the front. This way if there are questions it is easy to locate the information.

First published on June 5, 2000.