Sales Tax Compliance 101: For Direct Sellers, Party Plan and MLM Companies

Introduction to State Sales and Use Tax

Leaders of direct selling companies must wear many hats, especially when starting a new business. The complexities of sales and use tax rules can be mystifying.  In this post, we will strive to provide simple answers to the questions most frequently asked on sales and use taxation.

For direct sellers with national distribution, [“It’s what you don’t know about sales and use tax that can kill your business.”] That adage is particularly true today in the wake of the post Wayfair tax requirements. For companies handling their taxes manually, the risk of being able to properly calculate sales tax in an environment where there are thousands of single zip codes that could potentially include numerous different sales tax rates within one zip code – is a daunting and time-consuming challenge.

With the frequent changes to the tax laws and its interpretation, it can be quite difficult to remain up-to-date on all the information necessary to be compliant. These issues are often unknown until a state auditor shows up to receive under-collected and unpaid taxes from your purchasers. Additionally, when sales tax is over-collected, class action lawsuits from purchasers are not uncommon and require direct selling companies to refund all over-collected taxes over multiple years.

That can add up to substantial tax liabilities, especially in large multi-national companies.  But the good news is that although the risks are real, the solutions are also real and available.

For the nontax specialists; our partner, Wolters Kluwer Tax and Accounting has created a series of foundational topics on sales and use tax. To read the informational series, click here, to begin with Part 1.

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