Sales Tax Outsourcing vs. Return Prep Outsourcing

As sales tax outsourcing has grown in popularity, I sometimes see situations where the “service provider” (I use that term loosely as these are generally software firms that try to provide service) is misaligned with the requirements of the client. 

In the early days of sales tax outsourcing, it was all about return prep. 

Vendors focused on the large end of the market – Fortune 1000 businesses, who possessed significant in-house sales tax expertise.  These large businesses needed access to efficient return preparation, not sales tax expertise.  Many vendors thrived in this environment, building more and more efficient return preparation shops and reducing the overall cost per-return.  These vendors were successful at creating a commodity driven marketplace.

However, the large end of the market ultimately became saturated and vendors started moving downstream to the small and mid-size businesses.  These small and mid-size businesses often lack the internal sales tax department that their Fortune 1000 brethren possess. 

The wise vendors realized along the way that small and mid-size businesses need more than just return prep, they need guidance, advice, and access to people to address day-to-day sales tax questions. 

The return prep providers failed in this market and continue to fail today.

Unfortunately for some businesses, these return prep dinosaurs continue to push their return prep service to a market that requires something more. 

If your business does not have a dedicated sales tax resource, be wary of these return prep providers.  You will leave a large gap in your sales tax compliance process which ultimately translates into risk for the business. 

Look for services providers that can help with the day-to-day sales tax questions and issues:

• I have nexus? 
• Should I register? 
• What should I do with this nexus questionnaire? 
• How risky is it to take this position? 
• What should I do about this audit notification? 

Return prep providers will not know how, or be able to address these questions for you.