While TaxConnex subscribes to the belief that sales tax cannot be fully automated, there is a time and place for leveraging technology.  One of those areas is in the development of sales tax files that help drive the monthly compliance process.  These files can also be an effective tool to help streamline the tax return preparation process.   Whether you are implementing a new billing system, adding a tax calculation engine, or redesigning your current Sales Tax Compliance processes, it is worthwhile to take the time to ask some basic questions to help identify report requirements prior to submitting your report design for development.

  • What is the source for the report?  This could be your billing system, tax calculation engine, general ledger or another system.  You may need to design multiple reports if data is required from multiple systems. 
  • What is the core data required for the report?  The answer to this question will be driven by your sales tax return reporting requirements.  In general the following core elements must exist in the report:
    • Tax jurisdiction indicators for situsing of transactions:  this includes geocode or zip code, state, county, city, and perhaps a district jurisdiction description
    • Relevant transaction amounts:  Gross Sales, Exempt Sales, Non-taxable Sales, Taxable Sales and Sales Tax Collected or Sales Tax Accrued
    • Type of transaction: transaction types should associate with the type of tax rate that is applied to the transaction.  This could be a sales tax, rental tax, consumers use tax, etc.
    • Entity and location indicators:  If you have more than one entity that reports sales tax you may need to include an Entity Code in the report to distinguish the data or generate a separate report for each entity.  If you have more than one physical location in a jurisdiction you may need to include a store code, warehouse code, etc. to distinguish the data for location filing.
    • Other:  You may want to include invoice numbers in the data to assist with research or troubleshooting.  For General Ledger reconciliation purposes if your G/L accounts are at a jurisdiction level, distribution center level,  or other similar level including the account number may make reconciliation more efficient
  • How should the report be formatted?  Your method of return preparation may drive the report format required.  If you are using a software package to generate the returns then you may require a text file for importing.  Spreadsheets are commonly used for manual return preparation processes.
  • How will the report be delivered and stored?  Determine if IT will run the report for you or if one of the team staff members will pull the report each month.   A designated area for storing the reports should be established with regular backups. 
  • When is the report needed each month?  You may need to review your monthly accounting close date in comparison to your return due dates to establish the due date for the report.  Your team will need time to complete the return preparation and check request processes in time to meet the return due dates.

Depending on your type of business and reporting requirements there may be additional requirements that need to be supported through the report.  Taking the time up-front to research and gather requirements ensures accurate data is flowing to each of your sales tax returns and can potentially reduce the time spend on tax return preparation each month.

Anne Birkmann

Written by Anne Birkmann