Has Your Sales Tax Outsourcing Engagement Gone Sideways?

Sales tax outsourcing engagements can occasionally go “sideways” and a change in vendors is necessary. As year-end rapidly approaches, it’s a good time to evaluate certain business activities and consider a change in your sales tax outsourcing relationship.

Here are a few signs you might need to make a change:

• You are spending too much time overseeing the outsourcing relationship. One of the key reasons to outsource a business process is to leverage the capabilities of the vendor and reduce the amount of time spent internally on the process. I think you should always have some level of oversight, but you’ll know if you lack confidence in the vendor and are spending time checking and double checking their work.

• There are too many notices describing an issue. Some notices will happen in the normal course of business. Sometimes they are communications from the jurisdictions about a rate change or a new form or some other relevant compliance requirement. Other times, they are a result of a deficiency – a late return, an error on the return, etc. If you are receiving more of these notices than you did prior to outsourcing this is a red flag. 

• You have no reliable point of contact. You should have a point of contact that you can reach out to with any sales tax related question. If this person is not available, if they turnover, or you lack confidence in their ability to resolve your question, then it may be time for a change. 

• There’s no accountability to the work. Who is directly responsible if there is an issue? Is it the person who prepares your return? Is it the person that pays your return? Or in some situations, you could have a separate company paying your returns – completely different than the company that prepares your returns. Lack of accountability should raise a concern. 

• Your boss is contacted by a jurisdiction due to some type of failure to file or pay. This is never a good situation and I’ve seen many companies migrate to a new vendor for this reason alone.

Each item above is a red flag that could indicate a change is necessary. These issues are balanced on a scale versus the perceived difficulty in changing outsourcing providers. Until the issues outweigh the perceived pain then companies will not migrate.

However, what I’ve found is that the perceived pain of migrating is over inflated. The initial migration to an outsourcing relationship can be difficult – you need to establish a consistent data process; develop a filing calendar with due dates, id numbers, etc.; document the e-file logins and passwords, etc. It can be a difficult process sometimes. You are essentially building and documenting a new process. When migrating to a new vendor, you are “lifting” this existing process and moving it to another provider. Moving the process is far easier than building the process.

My encouragement to you is that if you are experiencing a bad outsourcing relationship, don’t be intimidated by the migration process to a new vendor. I’ve developed a simple guide to help with the transition – including information you need to gather from your current provider, a cancellation letter, and other tips to ensure a smooth transition.