You Get What You Pay For

One of our biggest challenges as a business is trying to educate our market.  You have read this before in my blogs, but there are tremendous misunderstandings about transactions tax and what it requires to stay in compliance with the laws.  

We had a recent encounter with a prospect that has tried four different outsource services in the last seven or eight years and is in need of a new service provider again.   For all of their previous outsource services, the prospect has been driven by price alone in their purchasing decision.  They have consistently gone with the service provider that makes the most promises for the cheapest price.  Each time they became fed up with the recurring service failures of their provider, they sought another service provider just like the previous one.  This time, their service provider is cancelling the contract with them because the service provider is losing money and our prospect is unwilling to pay more.  

As Dr. Phil says…if you keep doing what you’re doing, you’ll keep getting what you’re getting (or something like that)! 

 

Here are a few of the reasons companies repeat their mistakes with sales tax compliance outsource providers:

• The company fundamentally believes that transactions tax compliance is as simple as taking numbers from a spreadsheet and moving it to a form. Believing this fallacy leads to an unrealistic expectation that it only costs a few dollars at most to do this for any given tax return.
• The decision maker at the company has no first-hand experience with sales tax compliance outsourcing and they do not adequately investigate and consider the experience of their predecessors in the company or other experts.
• The company ignores its internal costs for managing the compliance outsource despite the fact that their resources are consumed with managing and reviewing the outsource provider.

 For any company looking for an outsource provider, consider this:

1. Sales tax compliance is transactions based and each transaction matters. The more transactions you have, the higher likelihood of nuances and exceptions that make individual transactions different from others (e.g., credits and adjustments).   It is difficult to consolidate multiple transactions into one or two lines on a tax return because of these nuances and exceptions.
2. Sales tax compliance can involve hundreds of jurisdictions each month…not just 50 states quarterly or annually. The volume of filings always results in volumes of communications from the hundreds of jurisdictions.  Much of this communication is informational, but it all must be reviewed and assessed.
3. Sales tax compliance is always urgent and there is no opportunity for filing an extension. As such, the processing time is extremely condensed, which leaves very little margin for surprises or ‘out of process’ activities.
4. Technology is a necessity for sales tax compliance but it is not a panacea. The technology must be accompanied by strong knowledge and process to manage the out of process transactions and situations, the nuances and exceptions and the condensed filing period. 
5. It is always best to find a vendor that specializes in a particular discipline or expertise. Sales tax compliance requires dedication and focus.  If sales tax compliance is just another ancillary service for a technology company or a consulting firm, you should know that compliance is not their focus.

The bottom line is “YOU GET WHAT YOU PAY FOR”.  There are many things we learned from our parents that are worth remembering.  This is one of them.