You Can't Solve Sales Tax Problems with Technology Only

Since the Wayfair decision five years ago, sales tax compliance has had to become a major priority for businesses with multistate sales.  In fact, 33% of finance professionals rank their top two concerns of managing sales tax as keeping up with their evolving nexus footprint, according to a TaxConnex blind survey conducted at the end of 2022. The survey also stated that over 52% of financial leaders remain relatively unhappy with their company’s approach to managing sales tax.

Though businesses still have varying levels of knowledge on the sales tax rules, regulations, and their own obligations, they all have one thing in common: they want their tax problems and solutions to be simple. 

The first step for many businesses, after they determine the taxability of their products/services, is to do a nexus review to determine where they should be collecting sales tax.  From there businesses start to consider how they are going to charge sales tax – either on the invoice or in their shopping cart.  Invariably, different software options bubble to the surface with this decision. These sales tax technology solutions appear to automate the full sales tax process; however, what is not apparent is that the software options are similar to a do-it-yourself (DIY) project.  The business is still responsible for managing the software and ensuring accuracy of their data and calendars. Someone must have the bandwidth to tell the software company what to do and when to do it.  

This would include:   

• Implementation of the technology
• Maintenance of the business assumptions and rules applied by the technology  
• Updates and management of the tax calendar and changing filing frequencies 
• Managing sales thresholds and an expanding nexus footprint 
• Taxability of new products and services 
• Management of the output from the technology – specifically tax data 
• Responding to jurisdictional notices and inquiries 

But this is not to say that technology shouldn’t be used. There are several good software options on the market, they just must be used in conjunction with a sales tax professional. 

Sales tax compliance is complicated and multi-layered, requiring a person (ideally a person with extensive sales tax experience) to peel back the onion by jurisdiction (state, municipal, home rule, special district), activity, and type of tax before making key decisions. When you chose an “all-in-one” solution, that’s probably not what you had in mind. The hope was to remove bandwidth issues and allow your team to focus on other tasks, but it’s just not possible without a human touch.

Technology is a valuable tool, and in 2023, we’re leaning on it more than ever. But technology alone lacks the insight needed to manage sales tax from registration to remittance and audit to penalty resolution. 

When you pair your sales tax technology 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 and filing your returns.