A recent article in Business Insider about the best and worst states for sales tax raises the question: does low sales tax mean a state is business-friendly? As with just about everything else in sales tax, it depends. Gauging if your state is business-friendly when it comes to sales tax comes down to a number of different factors and it has a lot more to do with how states treat businesses than the rates they choose. Ease of Registration and Renewal, Some states make it very difficult to register to collect sales tax and others make the process a breeze. Once you’ve established your business, some states require that you keep your information updated by renewing every year. That can mean more paperwork, time, and potential for errors due to forgetfulness.
Some states automatically renew your business’s sales tax registration and send you an update without any action on your part and cross-verify information in other departments, like business registrations. States that auto-renew sales tax registrations annually without action on the part of the business are the most business-friendly. Ease of Filing, Electronic filing is the wave of the future but not all states are quite up to speed yet on the best ways to handle sales tax filing. Some states also require you to file in more than one place, perhaps with an independent municipal government for a local sales tax rate as well as with the state. States that have more complex systems for filing make it difficult for businesses to comply and are less business-friendly when it comes to sales tax.
Our software makes it much easier and faster for businesses to file both electronically and by paper returns and can help improve compliance. States like Alabama are on their way to making improvements and are climbing up the friendliness scale — but others still have a long way to go. Neutrality in Disputes When problems with sales tax arise, states and businesses have to work things out. The process can often feel very one-sided for a business going up against state auditors.
States that have third-party sales tax boards for review are typically more business-friendly because of the neutrality these boards represent in sales tax disputes. More states are working towards neutral processes for appeals, including Ohio, which has been making moves to resolve past sales tax issues including returning overpayments to businesses. These are just a few of the top factors that define business-friendly states when it comes to sales tax. There are plenty of other factors, of course, from the presence of an educated workforce to flexible zoning, but these are issues to examine as you consider where to locate your next branch.