Sales & Use Tax (SUT) compliance will loom large for businesses post-crisis. Here’s what it means for you and your clients right now.

If your firm is like most today, it’s being inundated with emails and phone calls from anxious small business clients who are trying to successfully navigate today’s uncertain times. Understandably, many of these clients are focused on the challenges immediately before them, not on longer-term planning. And because many of these clients are likely experiencing a significant downturn in sales currently, SUT feels pretty irrelevant to them at the moment.

Again, this is understandable. Right now, your small business clients are focused on their health and well-being first, and the sustainability of their business, second i.e., meeting payroll, tracking expenditures, adequate cash flow, etc. But eventually we will work our way through this and SUT issues will come back around, and very likely, in a big way.

State and local jurisdictions are facing unprecedented budget pressures brought on by the government shutdown and the overall response to the pandemic. Today, businesses, and accounting and tax departments, are doing their best with diminished resources and capacity. However, the most experienced among us know states will soon move to aggressively fill budget gaps, and the sales and use tax lever will be among the first they look to pull. As a result, clients will need help with planning and compliance, and firms must start thinking about this now. By planning well today, you can ensure your clients are prepared the moment SUT issues come back into focus. In this blog, we take a closer look at the state of things.

The SUT environment today:

  • Jurisdictions are losing revenue. You already know that this is happening, and you know the reasons why. When business is at a standstill, so are state and municipal revenues. Sales taxes play a large role in this dynamic.
  • eCommerce is booming – AND introducing new SUT issues. As retail locations have been shuttered, eCommerce clients have experienced an equally dramatic shift in demand and business models. They could be experiencing an increase in business in individual jurisdictions that are putting them over thresholds, or finding themselves in new jurisdictions where they’re not registered. These new opportunities introduce new tax complexity.
  • Jurisdictions are playing nice on SUT – for now. Jurisdictions understand the tremendous pressures on businesses today, so are taking a light touch when it comes to SUT compliance during these times. But sales taxes are also the fastest way for them to find money, and the budget picture for these jurisdictions is growing more dire each day. Eventually, the pendulum will swing in the other direction, with SUT enforcement becoming more aggressive.

What it means for your firm:

  • More SUT work is coming. As clients refocus on their core business, running as lean as possible with no extra bandwidth, many will look to outsource SUT compliance tasks. Be ready for the moment when clients ask, “can you just take this over for me?"
  • CFOs are looking for cash. Client CFOs are already looking under every rock they can find to free up cash, and there’s no reason to think they’ll stop anytime soon. SUT can be an important tool for helping these CFOs. For example, SUT advisory services such as Reverse Sales Tax Audits can help find previously overlooked sources of liquidity.
  • This is the time to help clients get their SUT houses in order. Your clients should expect to face more aggressive SUT enforcement as jurisdictions move to shore up their own budgets in the future. Now is the time to advise your clients for the coming wave of SUT activity.

Given all the current pressures vying for your clients’ attention, it should come as no surprise that you may need to convince them that SUT is an issue warranting their time and attention. It’s a sensitive discussion, and you know them best, so you decide when it’s an appropriate time to raise it.

But remember not to wait too long. The issue can compound itself and SUT is an important opportunity to demonstrate your firm’s strategic value to clients. In the end, they will appreciate your helping them anticipate and plan for this below-the-radar issue, before it comes roaring back in a larger than life way.

Lastly, if we’ve learned nothing else during these challenging times, it’s that there are leading cloud technology solutions available to you as a trusted advisor. These tools can greatly enhance the value you can deliver to clients. SUT is no different!

For additional resources and guidance for your firm on navigating these tough times, visit CPA.com/uncertain-times.