Somewhere, a CFO is lying face down on a desk. A number glows above her on the computer screen: $96,552. That’s how much it cost her company to manage a recent sales tax audit.
Could this happen to you?
For many companies, when the topic of sales tax comes up, the first response from most of the staff will be, “What’s the big deal? I just need a rate.” But when you ask a Controller or Finance person, their first response is usually, “They don’t understand. It’s so much more than a rate.”
Sales tax is more complex than ever and the rules of the game are constantly changing, making it increasingly difficult to maintain accuracy. Even the most seasoned tax professionals would have to be super human to be 100% on top of current rates, rules, jurisdictions, exemptions, and holidays.
Here’s why different responses in the same company is a problem: Over 70% of the time, the tax and accounting departments aren’t even responsible for managing tax compliance (charging sales tax, collecting exemption certificates, etc…). For many companies, it’s the credit department who carries that burden. This disconnect in how sales tax is managed and by whom, often results in tax rate, taxability, and jurisdiction errors.
What are the common misconceptions around sales tax compliance?
Misconception 1: Sales Tax is Easy
Downloading rate tables, visiting state websites, plugging numbers into invoicing systems, determining exempt sales and filling out complex tax return forms manually is unbelievably time consuming and fraught with error. That’s because sales tax is hard. There are countless things that go into ensuring sales tax is being done correctly and when you tie in the fact that there are more than 12,000 taxing jurisdictions, thousands of product taxability rules in the U.S., and the rules are subject to change, it’s not easy.
Misconception 2: My ERP Already Automates Sales Tax
Most ERP have built-in sales tax functionality, but it’s very basic. Not only does it require manual work to configure and update, you can’t be fully accurate as most sales tax functions provided by the ERP use zip-code based tax tables to drive the calculation. There is also usually limited support for handling specific sales tax rules tied to sourcing, product taxability or exemptions. In addition, the sales tax reporting available doesn’t expose the data in a format required to support the filing process and some “accounting gymnastics” are still required of the accounting team or CPA to try and pull it all together.
Misconception 3: Sales Tax Automation is only for Big Companies
“My company is too small” or “We only have to collect in one state” are common objections we hear. Companies of all sizes can benefit from sales tax automation as risk is risk whether you have it one state or all states. Also, any time spent on it is wasted time that could be focused on the business versus the pass through activity of sales tax. Factor in a sales tax platform that is delivered as a SaaS solution with pricing based on usage and you have ROI for small businesses all the way up to the enterprise.
The bottom line is, fast, accurate calculation of sales tax impacts customer satisfaction and improves sales. Complete reporting of taxable and exempt sales saves time and lowers audit risk.
Do your own audit of what you might be doing right (or wrong) by reading 8 Ways to Increase Your Company’s Audit Risk. It offers a side-by-side comparison of how tax is handled in the ERP system manually vs automated.
Amiee Keenan | Channel Development Manager, Avalara
Cell: (401) 451-7223