For design and professional service firms expanding across state lines, sales tax mistakes aren’t just clerical errors—they can escalate into costly compliance nightmares. One of the most common (and expensive) missteps? Applying sales tax based on the wrong jurisdiction.
Here’s a scenario we see far too often: Your business is based in Texas. You land a great project with a client in Georgia. But when it comes time to charge sales tax, your bookkeeper applies the Texas rate.
It seems like a harmless oversight—until a Georgia auditor comes knocking.
Beyond financial penalties, these issues can damage your reputation—especially when clients are caught in the crossfire.
Why This Happens More Often Than You Think
- Sales tax rules vary by state—including what’s taxable and when nexus rules require you to file.
- Location matters—in most multi-state tax scenarios, the service delivery location determines the tax rate. Always verify though; never assume states operate the same.
- Software isn’t foolproof—it doesn’t automatically calculate the correct jurisdiction if the settings aren’t properly aligned
- People default to what's familiar—bookkeepers may use your home state’s rules by default, putting your compliance at risk.
The Cost of Getting It Wrong
- Underpaying in the correct jurisdiction (e.g., Georgia) can lead to penalties, interest, and late filing fees.
- Overpaying in the wrong jurisdiction (e.g., Texas) cuts into your margin and creates unnecessary reconciliation work.
- Misapplied taxes can trigger disputes with clients or vendors, harming trust.
- Audit risk compounds—if flagged, you may owe back taxes, with interest and penalties piling up.
The Solution
This isn’t just a tax issue—it’s a system issue. You need a better process to:
- Tag project locations consistently in your accounting or project management system
- Use tools that support jurisdiction-based tax rules
- Only collect and remit taxes in states where you're registered
- Set up internal alerts for new states or regions
- Train your team to flag when a client or project crosses state lines
If your firm is scaling or taking on out-of-state clients, now’s the time to reassess your tax handling processes. The cost of complacency is too high—and remember, auditors don’t care if a mistake was accidental. The liability is yours either way.
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Disclaimer:
The content provided on this blog is for informational purposes only and does not constitute legal, accounting, or tax advice. Readers should consult with a qualified tax professional or accountant to address specific questions or circumstances related to their business. Accounting Frontier disclaims any liability for actions taken based on this information.
