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Growth is the hallmark of success for any business. Yet, the very activities that lead a thriving business to gain a foothold in the marketplace may create surprising tax compliance risks. Before you take expansion too far, understand how it affects your tax obligations and what you can do to keep risk in check.

Here are four ways your success can be your downfall when it comes to tax compliance, and how to avoid allowing that to happen.

Expanding Your Operations

Adding new locations or products to your business can help increase sales volume. It can also increase your tax obligations. Expanding your physical footprint can trigger “nexus,” which is a connection between you (the seller) and the state or municipality in which you now have a presence.

Each new state in which you do business represents an additional set of rules and regulations. Given the number of jurisdictions in the U.S. (12,000+), even well-intentioned companies are hard pressed to get sales tax right.

Before you expand your operations, be sure you understand nexus laws and either hire or work with a third-party tax advisor to ensure you are following all laws and regulations.

Hiring Contractors

Independent contractors can be helpful for seasonal staffing needs or increasing operational capacity without committing to ongoing fixed costs. However, contract employees can also add to your compliance burden.

Hiring, documenting, and managing 1099s and other requirements is highly prone to error, especially when handled manually. Without a bulk validation tool, you are exposed to increased audit risk from incomplete or missing 1099s. To avoid this, use a tax tool to help speed up the process and ensure that you are doing it correctly.

Introducing New Products And Services

Innovation can position a company to earn increased market share, shareholder value and customer demand. But as the number of new products and services proliferates, so does transactional tax risk.

What one state deems as taxable another might view as tax-exempt. Product taxability rules in the U.S. change an estimated nine million times annually. Multiply the number of products by the number of jurisdictions by the number of exemptions by the number of rules and you’ll start to get the picture of how easy it could be to unwittingly over- or under-charge sales tax.

Again, a tax automation tool configures these changes, liabilities, and laws into algorithms so you can be sure you are properly charging every single time.

Expanding Routes To Market

As relationships with distributors, manufacturers and others along the supply chain proliferate, the levels of exposure to tax risk grow as well. Selling online? More than 20 states now have some kind of internet sales tax, giving states more control over out-of-state seller activity.

Fulfillment by Amazon (FBA) or similar partnerships are a great way to shorten the distance between the product and the end-user, lower overhead as well as storage costs, and ultimately scale operations. However, fulfillment centers and dropshippers can be significant enough physical presence to create nexus in certain states and trigger a tax obligation. Keep in mind where you have a physical footprint.

In all, don’t let business gains become compliance pains. Understand how growth plans could create new tax obligations. Keep up with changes in rates and product taxability and automate indirect tax tasks in your accounting system.

Photo: Flickr, Images Money