AI and automation are everywhere, but do they belong in your sales tax compliance process? The short answer: yes, but only partially.
As businesses grow and operate across multiple states, the need for sales tax automation becomes clearer. But it’s equally important to know where automation helps, and where it falls short.
Sales tax compliance starts with accurately calculating and charging the right tax on each transaction. With thousands of tax jurisdictions in the U.S., this is where automation shines.
Sales tax rates and taxability rules vary by:
Most sales tax calculation software is cloud-based (SaaS) and integrates directly with your invoicing, ecommerce, or ERP systems. When a customer makes a purchase or an invoice is created, the software uses key data; such as customer location, transaction amount, and product type, to:
If you’re selling across multiple states or offering a mix of products and services, automated tax calculation is often a must.
While tax automation software is a valuable tool, it’s not a complete solution. There are several parts of sales and use tax compliance that still require human oversight and expertise.
Automation won’t automatically detect when you’ve established economic or physical nexus in a new state. If your business expands, hires remote employees, or surpasses sales thresholds, someone needs to manually review and update your compliance footprint.
As your tax liability grows, your filing frequency may need to change (e.g., from quarterly to monthly). Automated tools don’t always recognize or adjust for this, leaving you vulnerable to missed deadlines.
Tax notices often arrive by mail or are posted in state e-file systems. These can include audit requests, late payment alerts, or rate changes. Software alone won’t monitor or resolve these issues.
Some tax types like the Washington Business and Occupation (B&O) tax or the Ohio Commercial Activity Tax (CAT) aren’t included in most sales tax systems. These must be tracked and filed separately.
Let’s say you collect sales tax on an invoice, remit it, and later the customer:
Now you’ve overpaid sales tax to the state. What do you do?
In a recent TaxConnex survey of finance professionals, respondents who use sales tax software revealed that the following areas are not handled by automation:
The promise of automation is “hands-off” compliance, but in reality, software alone can’t fully manage your risk.
If managing sales tax is eating up too much of your time, or you don’t have a tax expert on staff; it may be time to outsource your sales tax process.
An ideal solution combines:
At TaxConnex, we blend technology with dedicated practitioners who monitor changes, interpret notices, adjust settings, and ensure full compliance; something software alone just can’t offer.
Automation plays an important role in sales tax compliance, but it’s not a substitute for expertise.
To stay compliant and minimize risk, businesses need:
Whether you use software, outsource, or combine both, what matters most is being proactive and accurate with your sales tax obligations.
If you're unsure whether your automation setup is enough, or if you're juggling sales tax with no clear plan, it's time to talk to an expert.
Contact TaxConnex to learn how we combine automation with expertise to take sales tax off your plate for good.