Sales Tax Compliance... Not So Easy

When I first started in public accounting in 1985, there were two computers in the entire office. I worked for one of the Big 8 at the time, so this wasn’t because the firm was behind the times. This was the extent of computer technology in most accounting firms in 1985.

I also remember the income tax templates we prepared to send to the income tax software company for data entry and processing so we could get a tax return to review and, hopefully, file. However, we often had numerous iterations of this process (i.e. back and forth to the software company) before we could sign off on the tax return and get it filed. This was early income tax software technology. We have certainly come a long way with income tax preparation since 1985.

However, despite the great technology we have today, we all recognize that we still need income tax professionals to review and enter the correct information into the software and ultimately review and approve the tax return output. The income tax software is not ‘push button’ and is not a substitute for the tax intelligence of a CPA or other tax professional.

Given this universal understanding of the role of technology with income tax preparation and the value of income tax intelligence, why do so many accounting and tax professionals believe that sales and use tax software and technology is all that is necessary for an accurate and efficient sales tax compliance process?

I talk to CPA firms and businesses every day that think all their sales tax compliance problems can be solved with a ‘push button’ technology solution. It is the red EASY button you see in TV commercials.   The reality is that sales tax software solutions are just like income tax software – you must have a tax professional involved in the data input and the review of the output.   You also must have some level of sales and use tax intelligence overseeing the process.

When you consider that a business’s potential sales and use tax liability could be as high as 7% of gross revenue, isn’t the materiality and risk of sales tax much greater than the materiality and risk of income tax? I understand this does not apply to many businesses, but if you have responsibility for a sales tax liability, please give the management of the sales tax liability the same level of attention and value you give the income tax liability.   There is not a sales tax software solution on the market that is a one-size fits all, total solution for all businesses. If a sales rep tries to tell you there is such a solution, reflect on your income tax technology and process. Would you believe someone that told you they had an income tax software that was ‘push button’?