I frequently engage with businesses to help them establish a sales tax compliance process.  Setting up a sales tax compliance process includes multiple steps - identifying sales tax nexus, determining how to calculate sales tax for inclusion on invoices, managing exemptions certificates, preparing and filing returns, etc.  I occasionally see businesses fall into the trap that all of the various sales tax compliance functions can be automated with technology.  I believe technology has a role in the process and is necessary, but is inadequate in addressing many of the sales tax decisions that companies are required to make each day.

At its root, sales tax compliance is about managing cost and risk.  I have not found a technology solution that can manage this balancing act.  As an example, how much are you willing to invest to solve a $100 tax issue?  Most businesses will take the "risk" of non-compliance when the risk is low.  What if there's a $1,000 tax issue?  Understanding materiality and risk thresholds is unique between companies and individuals and difficult to automate with technology.

What happens when you set-up your tax technology to collect sales tax where you have sales tax nexus and your nexus footprint expands?  How does the technology know this?  I'm not aware of a technology solution that monitors sales tax nexus for a business.  An individual with knowledge of the business is necessary to review sales tax nexus, monitor it, and determine the right time to start collecting and remitting sales tax.

Here's a link to a new case study that highlights some of the challenges that a company recently ran into when they relied too heavily on technology to manage the sales tax process.

I'd love to hear from you examples of where a technology-heavy solution succeeded as well as situations where you believe human intervention and/or a service oriented approach is optimal.

Brian Greer

Written by Brian Greer