Automation can’t fix everything… yet – and that includes state sales tax returns. There are some functions automation is great for in state sales tax, but there are probably a lot of reasons why you’re frustrated too. Let’s chat about it…
State sales tax returns take up a lot of time – especially if you do business in several states or nationwide.
So, to save some time, you probably have a sales tax return automation solution to help keep your business compliant without having to worry too much about applying sales tax and filing returns on time. Trouble is, it’s not as “set-it-and-forget-it” as you would probably like.
In fact, for as great as these automated solutions are, they can make mistakes that end up costing your business a lot of money if you don’t catch them in time.
What State Sales Tax Automation Does Right
State sales tax automation is a good tool to have in your state sales tax toolbox. These solutions take out a lot of manual work for accountants, CPAs and your financial staff.
Notice how we said “tool?” That’s because they’re good at what they do well.
Automation is great at handling the front-end work. This means it can manage a lot of data and quickly apply accurate sales tax rates and taxability to all your products and services on every transaction. Then, it stores that data and even links it to your backend eCommerce solution, making it easy for you to access in the event of an audit. All these functions are extremely useful and would take way too much time for a human.
That’s why we would never suggest that you get rid of your automation solution. But we would advise you to use it the best way. Always make sure you’re checking the work because these solutions can make mistakes – especially with the more complex parts of state sales tax return filing. Here’s where state sales tax return automation can (and does) still fall short.
Where State Sales Tax Return Automation Can Go Wrong
We’ve listed four complaints or problems that our clients have expressed with their automation solutions. This is by no means an exhaustive list, but you’ll notice a common theme. These solutions need to be supplemented with sales tax expertise.
Here are the top four problems we see:
#1. Selecting Codes SKU’s and Revenue Lines for Correct Tax Rates and Application
Sales tax automation solutions have real time taxability and rates built into hundreds and even thousands of automation codes… the problem comes when the solution doesn’t assist with choosing the right code(s) to match your product and service sku’s or lines of revenue. If you sell tangible property that’s taxable in every state, then the setup is not too complex, but if you sell products and services with different taxability state to state (i.e. Supplements, food, Saas, digital goods, etc), then the taxability code you choose can make all the difference in accurately collecting tax.
When the tax laws change, automation solutions keep up with those changes, but they don’t apply the code you chose for your sku’s and revenue lines. Often you don’t know there’s an issue (either with the wrong code or with a code that has changed due to new legislation) until customers complain about being overcharged. Or worse yet, the auditor reveals you haven’t been collecting enough!
At Peisner Johnson we say, “collaboration builds confidence”, and we mean it! The best thing you can do to avoid errors when it comes to the collection of tax is to collaborate with a sales tax professional on the codes to choose. Then have a review of those codes periodically to ensure you’re getting the accurate taxability and rates applied to your sales as the legislation landscape changes.
#2. Filing Inaccurate Returns
The worst mistake that happens with an automated sales tax return solution is you end up paying hundreds or thousands of dollars each month out of your own pocket when you were trying to save hundreds on an automated solution! How can this happen!? It’s a common question, but getting answers when this happens is even more frustrating…
There are a variety of reasons why this could happen, but getting it corrected could take months, unfortunately - if your provider can even correct it. Do you know if your return provider is reporting the tax you’re collecting, or are they simply calculating tax due regardless of what was collected? When it comes to remittance, you’ve got to make certain you’re not overpaying tax, that is, not paying tax out of your own pocket that wasn’t collected. How does your return automation handle refund/credit transactions? Are you overpaying tax because your return provider is unable to properly apply those refunds and credits?
If your automation software has been filing inaccurate returns on your behalf, you’re not alone. It’s a common complaint. You don’t have to settle for good enough, when you can have an excellent provider of sales tax return preparation and filing, using the data that comes from an accurate front-end system - which means actually remitting the tax you collected and no more!
#3. Managing Notices - A Guaranteed State Correspondence
Some sales tax automation solutions are equipped to help you with notices received from various taxing jurisdictions. Typically notice resolution services come at an extra cost and are something that businesses disregard. If there’s one thing you can count on receiving, regardless of how great your return provider is, it’s receiving notices and correspondence from the state. These notices can be anything from informational/no action required all the way to errors with your return/immediate action required.
But sometimes, these solutions don’t file and respond to these notices correctly, or at all. That means you could be missing out on possible refunds or you’ll miss out on audit notices and be completely unprepared. The worst mistake is responding to a notice late, prompting another notice, and responding late again, prompting a notice for action. Then with no timely response, a potential lien on your account, or worse, an estimated audit (we’ve never seen an underestimated estimate - it always exceeds actual sales figures). This can all be avoided with a timely response to notices received from the states.
Again, a sales tax professional can field these better than a sales tax rep, so important notices don't slip through the cracks. At Peisner Johnson, notice resolution is simply included in the service.
#4. Providing Expert Support
At the end of the day, you can’t get peace of mind from software. While you may receive software support from your automation solution, you’re likely not getting expert support.
True peace of mind and expert advice can only come from a state sales tax professional.
There are a lot of moving parts to state sales tax, and there are a lot of moving parts to processing and correctly filing state sales tax returns. You need an expert to help you sort through it all, to make sure you’re fully compliant where you need to be, confirming that the proper amount of sales tax is remitted on every transaction, and ensuring that you're not paying out of pocket any additional tax that was NOT collected.
This shouldn’t come after you’ve had to deal with these issues, and request help. And more importantly, it shouldn’t come with a five-figure support package add-on to “expedite” the solution! Peace of mind comes from picking up the phone and talking to your dedicated point of contact (a sales tax professional).
State sales tax return automation is good, but it’s not quite the comprehensive solution that we would all like it to be. You can’t just turn it on and leave it to run unsupervised, otherwise costly errors can occur.
That’s why you still need a state sales tax professional to supplement and double-check the automated work. Doing so will ensure that you’re not paying sales tax out of pocket or committing costly errors should you be audited. And having a trusted advisor to help you wade through the muddy waters of state sales tax is something that will never truly be automated.
Are you having issues with your sales tax return automation? We’re here to help you through it. Hop on a short, no-strings-attached “What’s Next?” call. Peace of mind is right around the corner.