Sales Tax Outsourcing - How Much Does Poor Customer Service Cost?

Customer service is often cited to differentiate one company from another. I’ve always struggled with how to relay the true value of customer service. I would consider it a “soft” differentiator in that it’s fairly objective and difficult to quantify. Delivery times would be a “hard” differentiator when expressed as a number of minutes/hours. “Our delivery time is 24 hours from the time you place an order”, is easily measured. How do you measure “customer service”? It’s best to break this down into some “hard” components that can actually be quantified.

• Responsiveness – How quickly does your service provider respond to you when you have a question? At TaxConnex, we will respond within 24 hours and often within 1 to 2 hours. We may not have an immediate answer to your question, but we will let you know we received your request and we are working on an answer. That’s a reasonable expectation you should have. The adage time is money applies here. We often have clients that need help quoting a project or submitting a proposal and they need to know the sales tax applicability and current tax rates to include in their proposal. Mismanaging this step could cost 8% or more of the overall project – severely eroding profit margins. Sales tax questions are often very time sensitive in nature.

• Notice Balance – Notices are inevitable in the sales tax world. The key is responding to and closing the notices rapidly. TaxConnex works toward a zero notice balance where we act with great urgency to close all notices. Each notice represents risk in the form of an assessment, penalties and interest. Understanding your notice balance with your current outsourcing provider and their overall philosophy in clearing notices will help you determine the level of risk in your business. The amount of these potential assessments can add-up quickly.

• Time Spent in Oversight – When outsourcing sales tax compliance there should be an element of oversight on behalf of the tax payer. The amount of time spent in oversight is directly proportional to the level of quality and “customer service” of the service provider. If you have a large notice balance representing risk to the business then you will spend time overseeing the clearance of these notices. If you have questions that aren’t responded to in a timely fashion you will have additional time following-up on questions. These subtle issues also lead to an erosion of your confidence in your service provider resulting in additional time spent each month managing the process. If you have 4 hours spent each month managing one service provider and 12 hours each month managing another service provider then the one where you spend the least time can be viewed as providing better customer service.

• Credit Management – This is an issue that potentially has huge dollar implications. Most sales tax outsourcing providers offset credits at the geocode or zip code level. This sounds good on the surface but can be an issue. Here’s a common example. A tax payer invoices a customer for a product or service including the applicable sales tax. This sales tax gets remitted the following month to the jurisdiction. However, the customer short pays and provides a resale certificate, or they return the product, or otherwise change the transaction whereby sales tax is no longer applicable. The tax payer could amend the return to correct this issue but depending on the size of the transaction this may not be practical. As a result, if you’ve outsourced the sales tax compliance, many outsourcing firms will hold the tax and offset at the geocode or zip code level in the upcoming months. The problem arises when the tax payer does not have a sale to this specific geocode or zip code in the future. You think, “That’s easy, let’s just offset the credit at the return”. That’s not possible with the outsourcing firms that are technology centric (see my previous blog post about technology companies attempting to provide sales tax outsourcing services). These technology oriented businesses rely on the technology to do the heavy lifting and they wait for future tax in the same geocode or zip code. I’ve seen many situations where the credits build up over time to exceed $100,000 or more. Worse yet, if these credits are not taken in a timely fashion they will be out of statute at some point. You should look at your business and understand the dollar volume of these credits and specifically how you or a sales tax outsourcing firm can help you fully recognize these credits.

I have had businesses switch from one outsourcing firm to TaxConnex for each of the reasons described above individually. I can generically refer to the fact that TaxConnex provides great customer service and that’s why these businesses chose TaxConnex. But that’s not enough. Customer service needs to be defined better. For those of you that might be looking to outsource your sales tax compliance, dig deep to understand the processes of the various outsourcing firms and understand what the true cost is for each provider. For those of you already outsourced, consider the examples above and determine how much poor customer service is costing your business.