Understanding the various aspects of your sales tax process is critical to keep your business on solid ground as it relates to sales tax and minimize your risk.
For most, there are three main aspects of managing your sales tax obligations – consulting, calculation and compliance, but did you know they don’t necessarily have to be done by the same provider. In fact, in many cases, those that excel in one aspect, may not be able to provide the best support in another.
If your company is like many businesses these days, you may be tempted to go the “easy route” when determining how best to manage your sales tax requirements. The “easy route” is buying software that claims to automate the entire process including the sales tax calculations and the compliance aspect of preparing and filing sales tax returns.
If you go down this path, you’ll soon find that you still must do most of the heavy lifting. You’ll be responsible for configuring the software and telling the software company how to manage the sales tax process. But that’s not what you signed up for.
Clearly, only one aspect of sales tax can be automated – the calculation, but it’s not the only solution there either.
Calculating your Tax
Determining the most effective sales tax calculation process comes with many variables to consider: where you have nexus, the complexity of the taxability of your products/services, whether your invoices are recurring to the same customers each month, and the capabilities and limitations of your invoicing system (all of this is where consulting comes in). Some businesses can manage the calculation of sales tax without separate sales tax software systems. Other businesses will benefit from a tax-rate only solution, while other more complex businesses will absolutely need a sales tax software.
If you decide that sales tax calculation software is the better option, there are numerous companies you may consider. Today, most sales tax calculation software is delivered in the cloud via a Software-as-a-Service model. These tools automate the sales tax calculation process by integrating with the invoicing or ERP system typically via an API (Application Programming Interface). When it comes time to create a customer quote or invoice, the ERP system will pass certain data elements (customer location, product, sales amount, etc.) to the sales tax calculation system which will then calculate the sales tax and pass back to the ERP system the applicable sales tax. This is generally done in real time in sub-second intervals.
Filing and Remittance
What’s next? Just the filing and remittance, right? Wrong!
Filing is just one piece of the puzzle, but maintaining a sales tax compliance process isn’t a once a month (or year) project. Whether you manage the process in-house, work with a technology vendor or outsource completely, there are many decisions and pieces to the process that need to be understood, including remitting payments, maintaining, and updating your tax calendar, reviewing nexus, keeping up with notices, researching taxability rules, validating exemption certificates, and the list goes on.
It’s important to understand the differences in calculating sales tax and maintaining your compliance. Many businesses get stuck working with a vendor that sells them a one-size-fits all, “simple” solution but end up with a load of work still on their plate and no idea how to manage it. Calculation software can be a huge help in the sales tax compliance process, but you still need to consider the hands on approach of compliance and how you will manage that.
When you pair your tech solutions with an outsourced compliance partner, you’re able to make the most of valuable resources available to you and have a reliable compliance solution that actually takes the burden of sales tax off your plate. Contact TaxConnex to learn more about our services in sales tax compliance – from nexus reviews and audit management to maintaining your tax calendar, responding to jurisdictional notices and filing your returns.
Looking to learn more? Check out our eBook – Calculation vs Compliance: Two Different Aspects of Compliance.