Transitioning Your Sales Tax Outsourcing Service

I recently held a webinar titled, “Transitioning Your Sales Tax Outsourcing Service”.  The webinar was based on conversations with tax and finance executives over the previous 15 years.  What I have found fascinating is that it takes a lot of wrong doings before a company will transition their sales tax outsourcing service from one provider to a new provider.  I have a couple of theories on why this is true – one is that I believe it’s human nature to try to make a relationship work once you have become invested in it.  I also believe, specific to sales tax outsourcing, that the perceived pain of switching is much greater than the actual pain of switching.

The example I used in the webinar related to building a “package” or a process when a company first transitions from an in-house service to an outsourced service.  Building this initial package can sometimes be challenging.  A company must have a filing schedule or calendar listing where they are registered, their sales tax id numbers, the filing frequency, the type of payment (check, ACH CR or ACH DR), and the efile login credentials if the filing is completed online.  Not every company has good record keeping and it takes some effort to pull this information together.  Additionally, an in-house process often uses hard copy reports or various Excel spreadsheets to manipulate the data prior to hand transcribing the information onto the applicable return.  These reports may need to be reformatted before an outsourcer can work with them effectively.  Once you’ve expended the effort to develop this “package”, then it becomes fairly easy to move the package from outsourcer A to outsourcer B.

If you find yourself in a position where your current sales tax outsourcing provider is not meeting your expectations, I’ve created a step-by-step guide to facilitate a simple transition from one outsourcer to another.  It goes like this:

1. Gather your documentation – This includes the tax calendar, registration numbers, etc. referenced above.
2. Review your contract terms with your current provider – You’re looking to identify the cancellation policy.  Often times you need to provide advanced notice of cancellation.
3. Agree to pricing and terms with your new provider – Seems like an obvious step but I’ve seen this step neglected.
4. Ask your new provider for a list of information they will need during the transition – In addition to the documentation referenced above, the new provider will also need sample data files and any original forms provided by the jurisdictions.
5. Secure copies of return images and reports – Most sales tax outsourcing providers will host images of your tax returns and various reports on a secure website.  Have a plan in place to get copies of this documentation.
6. Notify your current provider that you are cancelling – Generally, you will be required to issue a formal cancellation letter.  Be clear on the end date.
7. Determine how to resolve notices from prior periods – Identifying when to pull in your old service provider to help resolve a notice should be established up front.  As an example, you may decide to automatically pay any notice with less than $100 of penalty or interest related to a prior period before pulling in the old service provider.  This materiality threshold will be different for each company.

The lesson learned is that if you’re in a bad engagement, you shouldn’t fear the transition.  From my experience, 80% or more of the transitions can be completed successfully with minimal client involvement (a couple of phone calls + information gathering) over a couple of weeks.