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Sales Tax Services for E-commerce Clients – Part 1

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Apr 16th 2018
CPA Catching Clouds
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If you have e-commerce or retail clients in some capacity, you know how complex sales tax compliance has become.

As part of a three-part series, e-commerce expert Patti Scharf, CPA will address the growing concerns of accountants who have this client base, by offering tips on compliance and growth from start-ups to larger businesses. The first article in this series addresses the needs of start-up businesses.

The explosion of online sales means that the demand for expertise and up-to-date understanding of fast-changing compliance rules is in great demand by even the smallest client. Yet, many accounting firms do not offer one important piece related to e-commerce: sales tax compliance services.

For clients with full- or part-time online sales, choosing a professional to help clients with tax and accounting services, especially e-commerce reporting and compliance, is a matter of finding a professional with the technical skills and experience based on the  business’ stage. Businesses move through a predictable set of three evolutionary stages; your clients’ businesses require the right fit depending on their stage of development.

Here's the deal: Businesses that are just starting out aren't going to (and shouldn't!) spend hundreds or thousands of dollars every month on their accounting. It's unrealistic, and frankly, unnecessary.

The larger and more complex the e-commerce business, the more critical it is to have an accountant who is an industry specialist. Once the business starts making "real" money, it should invest in a solid, accurate, advisory accountant who can not only keep them in compliance, but can help show them how to make more money with less effort.

This article will focus on the startup or side business with up to $20,000 per month in sales. The next two articles will focus on the more established small business (stage two) and larger businesses (stage three).

Startup Challenges

Typically, startups don't have any money and don't know where to start. Chances are they are the ones doing the books, but that’s not in their skill set. It's likely they dislike the work and it distracts them from what they feel they should be doing, such as building business, sourcing products and marketing the company. As a result, they are either not doing the bookkeeping at all or doing it poorly.

Startups want to know how to structure their business. They want to know the basics about taxes as they relate to their business, such as what they can legally write-off, what receipts they should be keeping, how they should keep the receipts and how to keep out of trouble with the IRS. The main focus is likely on the initial growth of their business.

They are probably getting their feet wet by first selling on Amazon FBA because it's easy to start as a side gig while they work on creating their own company. Yet, if they’ve been paying close attention – which may be a stretch – they are a little wigged out about running into trouble with state reporting and compliance because they haven't addresses sales tax and may even be regretting setting up that FBA store.

The Accounting Solution

Their gut is right! They do need a CPA, but don't necessarily need the CPA to do their bookkeeping. The CPA should be the person who helps file tax returns and is the bare minimum they need for business. At this stage of the game, clients don't need to pull out the big guns by having the accounting pro do all of the bookkeeping work, which is good because they probably can't easily afford them now, anyway.

Here's the good news: Startups also don't necessarily need a CPA who specializes in e-commerce at this stage of the game, although the company will definitely want someone experienced in e-commerce at later stages. At this stage, it might be nice to have, especially since an accounting professional can grow with the business, but the vast majority of CPAs can help with the basic questions, with the possible exception of questions on sales tax.

With the right guidance, this type of business should be able to effectively run their books for a little while, and this is a good idea, anyway, just so the business can understand the work before handing it off to someone else. Doing the books also allows the business to save and put that money toward other business-building efforts.

Whether the business does their own books or has an accounting pro do them, I highly recommend a business does some basic research to ensure they understand the basics of e-commerce accounting.

Are You the Best-Fit Accountant?

With that said, taxes are a whole other animal, so at this point, I refer the business to that CPA I said to get to help with the basics. Here are four key tips I give businesses for finding the right one, so you, as the accountant, can make sure you check these boxes for your potential clients:

1. See if you like them and if they work the way you do. Seriously, this is an easy and often undervalued assessment:

  • Are you someone they would like to talk to?
  • Are you approachable?
  • Are you willing to take the time to answer any questions?
  • Do you return phone calls?
  • Are you willing to do an online web-based call such as Skype or Zoom vs. expecting the client to come to your office?
  • Are you a good personality match?

2. Look up their individual CPA license with your State Board of Accountancy to make sure they are legit. Your license is a public record, so prospects can do a quick license lookup. They can also see any negative claims or if you don't have a license at all. However, don’t worry: most people who hold themselves out as CPAs pass this test with flying colors.

Find out how they bill. There has been a big shift in the accounting profession over the past five years toward "value pricing." This flattens out costs over time and gives a prospect or client an expectation of what you'll charge and what will be included for that price. If you are still billing by the hour, this may be a tip-off that you are not cutting edge. More progressive accountants are charging a set price and are often paid in advance of the work.

See how they market themselves. If you specialize in e-commerce, that's a big win for you. Prospects want someone who understands their business. However, there's a very steep learning curve for you in this field of specialization and if you say you specialize in e-commerce, professional services and nonprofits, this may mean you don’t specialize in any of these services.

Bottom line: Put yourself in your prospect’s or client’s shoes. Are you the kind of accountant they need? At the baseline, advise your clients to start budgeting for a bookkeeper.

They’ll eventually need one if and when they leave the startup stage. We’ve seen many businesses propel quickly from Stage One to Stage Three. Your clients should keep that in mind and adapt according to the growth expectations for their business.

The next article from Patti will address the needs of small business clients.

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