Sales tax never stands still. Since South Dakota v. Wayfair (2018), states have ramped up audit enforcement, using data-matching tools to flag unregistered or mis-filed sellers. As TaxCloud’s VP of Go-to-Market Ryan Pinkham notes, there are hundreds of sales tax changes every year.
This guide highlights the most common sales tax red flags accountants find in client books — and how to correct them before they become penalties or client issues.
Sales tax red flags: how to spot and fix them in your clients’ books
Even small inconsistencies in your clients’ books can signal larger compliance issues. Below are 13 common sales tax red flags accountants should watch for.
1. Surpassing threshold in unregistered states
This often happens when a client’s sales grow faster than their compliance tracking. Economic nexus thresholds are easy to cross and hard to monitor manually, especially across multiple platforms.
How to handle it: Run a sales-by-state report every quarter and flag any states showing consistent activity without a registration. If they’ve crossed a threshold, file registrations promptly.
Document thresholds in your workpapers so you can demonstrate due diligence if questioned. Tools that support economic nexus tracking can help you monitor exposure across states.
2. New sales channels with no tax setup
Clients love to launch new stores or wholesale accounts before checking tax settings. TikTok, Etsy, or new Shopify stores can each create separate nexus obligations.
How to handle it: Include a “new platform” question in your client intake or quarterly review checklist. Before a channel goes live, confirm product taxability and registration requirements for each state.
3. Inactive registrations with no filings
In many states, active permits must file even with no activity or be formally closed (e.g., Texas, Florida).
How to handle it: Review your clients’ state registration lists annually. If a registration is still active but there’s no activity, either close it formally or file zero returns to keep accounts in good standing. Firms managing multiple clients often rely on automated sales tax filing services to prevent missed filings.
4. Sales tax payable doesn’t match filed returns
This red flag shows up when the balance in the general ledger doesn’t clear after a filing period. It’s usually caused by timing mismatches (returns filed late, payments recorded early) or manual journal entries made to “fix” prior discrepancies.
How to handle it: Compare total tax collected per sales reports with what was actually remitted. Trace variances back to specific months. Reconcile monthly instead of waiting until year-end. It’s easier to catch small mismatches early.
5. Late or missing remittances
This one’s straightforward: the return wasn’t filed, or the payment didn’t post. It’s common when firms juggle multiple client filing calendars.
How to handle it: Centralize a compliance calendar and use shared reminders for due dates. For larger clients, assign responsibility within your team — someone owns the return, someone owns the payment. Working with a certified Streamlined Sales Tax program provider can simplify filings.
If a client qualifies as a CSP-compensated seller in SST member states, the state compensates the CSP for core services in those states, which can reduce the client’s direct compliance costs.
6. Negative or large carry-forward balances
Recurring credits or static balances can mean overpayments, misapplied refunds, or skipped filings.
How to handle it: Trace credits back to the original filing. If the same credit rolls over for several months, reconcile and either request a refund or adjust future filings.
7. Sudden spikes or drops in tax collected
Large fluctuations in collected tax without matching changes in sales volume usually point to setup or reporting errors. These may come from rate table updates, misclassified products, or changes in ecommerce integrations.
How to handle it: Compare sales and tax trends month over month. If sales remain stable but tax totals shift, review rate tables, taxability settings, and system changes during that period. Document your findings so future reviews have a clear baseline.
8. Inconsistent tax rates
When the same item is taxed at different rates across states (or even within the same state) it often means manual rate tables are out of sync. This is one of the most common errors for multi-state sellers.
How to handle it: Review rate data in your clients’ ecommerce or POS systems to confirm they’re using current rates. Pull a few invoices per jurisdiction and compare them to official state or local rates. Integrating an automated rate calculation tool can help ensure accuracy across all channels and jurisdictions.
9. Sales tax holidays not reflected in rate settings
Seasonal tax holidays temporarily exempt specific products, and missing these adjustments can result in either over-collection or under-collection. Apparel, school supplies, and electronics are frequent problem categories.
How to handle it: Before each state’s scheduled holiday, verify which items are exempt and ensure rate tables or product tax codes are updated. Use sales tax rate calculation software that updates promptly when states issue temporary exemptions or rate changes.
10. Marketplace sales reported incorrectly
Many marketplaces now collect and remit sales tax on behalf of sellers, but clients often misreport these transactions — either including marketplace-collected sales in taxable totals (over-collection) or omitting them entirely (under-reporting).
How to handle it: Reconcile marketplace reports against filed returns each period. Report gross sales as required, but exclude marketplace-collected amounts from taxable sales according to each state’s instructions. Maintain documentation from each platform confirming which transactions were remitted on your client’s behalf.
11. Missing or expired exemption certificates
Clients often assume long-time customers stay exempt indefinitely. Missing or expired certificates make even valid exempt sales taxable in an audit.
How to handle it: Review certificates at least annually. Set up a renewal reminder for recurring customers. A simple spreadsheet tracker works if you don’t have a document management system.
Midsize and larger sellers typically standardize this process through exemption certificate management software.
12. High percentage of tax-exempt sales
If exempt sales materially exceed prior-period trends or industry expectations, that’s a signal to review documentation and coding.
How to handle it: Run an exemption ratio report and compare it to prior years. Ask clients to justify major shifts in exempt volume. It’s often a reporting or coding issue, not a real business change.
13. New employees that may create nexus
When clients hire remote employees or contractors in another state, it can create or expand physical nexus depending on the employee’s role. Many firms miss this because clients don’t realize that even one out-of-state hire can shift tax obligations.
How to handle it: Ask clients during quarterly or year-end reviews if they’ve added any out-of-state employees, warehouse staff, or contractors. Cross-check payroll addresses against registered states. If the employee performs in-state business activities — such as sales, service, or fulfillment — register promptly and start collecting tax in that state going forward.
Watch: How to grow your sales tax offering
Whether you’re getting more client questions about sales tax, or you’re already managing it and frustrated with your current provider, this Town Hall will walk you through a smarter, more supportive approach designed specifically for firms like yours.
Sales tax red flags: quick-reference checklist for accountants
Use this checklist during monthly or year-end client reviews. Each red flag represents a potential compliance gap and an opportunity to add value through proactive review.
| Sales tax red flag | How to spot it | Risk level | Fix or prevention |
| Sales in unregistered states | Sales or inventory in states with no registration | High | Track thresholds automatically and register as needed |
| New sales channels with no tax setup | New platforms launched without tax settings | High | Add new channels to nexus tracking and confirm setup before launch |
| Inactive registrations with no filings | Active permits but no reported activity | Medium | Close or file zero returns to avoid non-filer notices |
| Sales tax payable doesn’t match filed returns | GL liability balances don’t clear post-filing | High | Reconcile collected vs. remitted amounts monthly |
| Late or missing remittances | Unpaid or unfiled periods in client records | High | Automate filing schedules or centralize due-date tracking |
| Negative or carry-forward balances | Credits or overpayments roll forward repeatedly | Medium | Reconcile and adjust prior filings; request refunds if needed |
| Sudden spikes or drops in tax collected | Tax totals shift without matching sales change | Medium | Review rate tables and mapping for recent updates |
| Inconsistent tax rates | Same product taxed differently across states | Medium | Use automated rate calculation to ensure consistency |
| Sales tax holidays not reflected | Products taxed during temporary exemptions | Medium | Review holiday schedules and update rate tables |
| Over-collection of tax | Clients charge rates above state/local levels | Low | Verify rate tables against official state databases |
| Missing or expired exemption certificates | Exempt sales lack valid certificates | High | Centralize and automate exemption certificate management |
| High percentage of exempt sales | Exempt sales significantly above historical or industry norms | High | Validate certificates and confirm correct product coding |
| Marketplace sales missing from filings | Marketplace activity absent from filings | Medium | Reconcile marketplace reports with state returns |
| New out-of-state employee or contractor | Payroll or contractor address in an unregistered state | Medium – High | Review job role and activities to confirm if physical nexus applies; register if required |
Turn sales tax red flags into scalable revenue with TaxCloud
Every time you close a client’s books, you’re sitting on insights that could become billable advisory work. TaxCloud helps you turn those insights into a repeatable, scalable service — so you can grow your practice without increasing workload.
Our platform handles the complexity behind the scenes: multi-client management, automated filings, exemption certificate tracking, and nexus monitoring across every state. You stay focused on strategy and client relationships while we keep their compliance airtight.
When you join the TaxCloud Accountant Partner Program, you unlock exclusive benefits designed for firm growth:
- Dedicated partner manager – personal guidance and direct access whenever you need help.
- Priority support – you and your clients get our fastest response times from U.S.-based experts.
- Discounted onboarding – referred clients receive up to 25% off onboarding packages.
- Accountant directory – get featured where new TaxCloud users look for trusted accounting partners.
- Co-marketing opportunities – grow visibility through joint content and campaigns.
- New client referrals – become part of our trusted network for tax consultations.
TaxCloud gives you the tools, visibility, and support to offer reliable sales tax compliance without expanding headcount.
Frequently asked questions
What are the most common sales tax red flags accountants find in client books?
Unreconciled sales tax payable accounts, missing or expired exemption certificates, and unregistered nexus states are the top issues. For ecommerce clients, platform sales and rate discrepancies are frequent trouble spots.
What red flags should accountants watch for with multi-state or cross-border sellers?
For multi-state sellers, watch for sales in unregistered states and inconsistent rates across jurisdictions. For cross-border sellers operating in Canada and the U.S., mismatched registration status or misunderstanding of GST/HST vs. state sales tax rules can cause exposure.
How often should accountants review client books for sales tax compliance?
At least quarterly, or any time a client adds new states, products, or sales channels. Automation tools like TaxCloud can monitor threshold changes continuously and flag issues in real time.
Do sales tax holidays create compliance risks?
Yes. Sales tax holidays temporarily change which items are exempt, and many businesses forget to update their systems. Automated calculation tools like TaxCloud update rates and exemptions in real time so clients stay compliant during those periods.