Sales Tax Outsourcing Race Heats Up

The sales tax outsourcing market has matured over the last few years.  When I started in the industry back in 2001, there was minimal competition.  The industry was dominated by one large player, a couple of public accounting firms, and some smaller, niche players.  Over the years, new entrants have emerged, some companies have gone out of business, public accounting firms have vacated the market, and most recently public accounting firms are re-entering the market.

Throughout these changes I’ve noticed a level of saturation with the Fortune 1000 businesses.  The sales tax outsourcing firms traditionally have gravitated to the large end of the market – hunting for those businesses that have hundreds or thousands of sales tax returns due each month.  These outsourcing firms have built their factories to capitalize on the Fortune 1000 and to process returns through a one-size fits all assembly line.  The assembly line demands conformity and strips out flexibility – much like a manufacturing plant.

However, with the saturation level of the Fortune 1000 nearing its peak in terms of adopting sales tax outsourcing solutions, outsourcing firms are looking to move downstream to serve the small and mid-market businesses.  The problem is that their old, monolithic processes aren’t designed to serve the small and mid-market business.  The assembly line assumes the client has an abundance of sales tax expertise in-house.  This is true of the Fortune 1000 but not so with the small and mid-market businesses.  These businesses demand sales tax expertise at their primary point of contact and require a different, more client-intimate approach, with a more skilled point of contact.

New entrants will likely have an advantage as they can build their processes from the ground up to capitalize on the requirements of the small and mid-size businesses.  It will be an interesting race to see if some of the historically dominant vendors can retool themselves quickly enough to penetrate this new market segment.