Sales Tax Automation - Not So Fast

By Brian Greer on Thu, Aug 04, 2011 @ 10:39 AM

One of the most commonly discussed concepts about sales tax is sales tax automation.  There are companies that will lead you to believe that all you need to do is hook up a piece of software and press a button and you’re ready to go.  They claim they’ve solved the world’s greatest dilemma.  These systems are valuable for a lot of businesses but beware as they may not solve all your issues.  A simple business with a single legal entity selling widgets can certainly benefit from the automation of these systems.  Where I have seen issues is with the more complex businesses.  Businesses that have unique product/service combinations (for example the bundling of taxable and exempt items) struggle with these automated systems because they often leverage a one-size-fits-all approach.  Businesses that have legacy accounting systems may struggle with integrating to these new systems as well.

The biggest down fall is that these systems presume the company has made the appropriate nexus decisions for their business, they’ve defined the appropriate tax treatment for their various products/services, and they can manage their sales tax audits internally.  I will agree that once an accurate “mapping” of the customer’s product and service categories has been made to the vendor’s tax codes in their system, then the system will automatically calculate the tax from that point forward.  That’s making a big assumption though.

What happens to these automated systems when it comes to filing the returns?  Again, from what I’ve seen, these are great solutions for less complex businesses.  But I can speak from over a decade of experience with outsourcing, that I’ve seen just a hand full of businesses that run all their tax through one system.  There’s always a sales tax file, usually a use tax file, and often an “adjustments” file to reconcile the differences between the tax and accounting systems.  These three files are for a single legal entity businesses.  Add legal entities, add to the number of files.

I think the bottom line is that like most processes sales tax can benefit greatly from technology and automation but there still needs to be a skilled resource telling the software what to do.

Brian Greer

Written by Brian Greer