Sales Tax Outsourcing Perspectives - Sales Tax Audits
When looking at sales tax outsourcing solutions, you will want to consider the impact of the outsourced solution on your audit management process. If you’re a small or midmarket business, the level of audit support you require will look very different from that of a larger business.
For the small and midmarket business, you may need someone to manage the entire audit process for you. While the larger business will be focused on how to easily tie out their data to the returns. Let’s look at each of these situations more closely.
The small or midmarket business generally does not have the internal sales tax expertise required to manage a sales tax audit. They rely on their outsourced provider to help them in this area. They find themselves in hot water when they sign up with an outsourced provider that is focused on the large business market. This type of provider often sees sales tax compliance as a “factory-driven” process where their main point of contact is generally a clerical individual with minimal tax expertise or business acumen. This person is not capable of managing an audit for the small or midmarket business. Sure, they may have a separate consulting division that can help you but now you’re talking about extra fees that you may not have anticipated.
In the case of the larger business that has the internal tax staff to manage the audit themselves, their primary focus from an audit perspective is how to tie out the data sent to the outsourcer to the returns prepared. I’ve seen various outsourced providers that manipulate the client’s data, allocate it based on complicated and sometimes arbitrary rules that eventually make it difficult to follow the data through the process to the return. When the customer then asks for an explanation of what happened inside the black box, they are often not satisfied with the response. The end result is a complicated and difficult to describe audit trail.
The lesson? When looking at sales tax outsourcing options, understand what level of audit support you need and what level of audit support your outsourcer is designed to provide.