State sales tax automation can do a lot to simplify your sales tax compliance process, but every sales tax function can’t be handled by technology. Here are three areas where you still need to involve people.
State sales tax automation has changed the way accountants and tax experts do business, especially given the modern sales tax environment. Before automation, companies would have to spend a lot of time and money to keep up with changing tax laws and ensure compliance.
State sales tax automation provides very accurate tax rates along with very accurate taxability determinations on both sales and purchases—making it easier than ever to get compliant.
As The Sales Tax People, we are big believers in the benefits state sales tax automation has to offer—but only where it works seamlessly and accurately.
First, we will cover what sales tax automation can do well. Then, we will highlight three areas where you still need to involve people. That way, you can get a complete picture of how to leverage automation and sales tax experts to stay compliant.
Sales tax automation is great for handling complex and repetitive manual processes that used to take a lot of human touch and created a bottle neck for transactions. In addition to removing human hands from complex tasks, automation can also connect your backend systems to allow data to flow freely.
Automated solutions can also connect to your eCommerce and accounting programs to give your business accurate taxability and rates in real-time. This provides a quick purchase experience for customers and helps keep businesses compliant. These solutions also provide comprehensive reports on demand, so you can be ready when an audit rolls around. (And believe us, you’ll want to be ready for that.)
There are also solutions that help you track nexus and file sales tax returns.
While these capabilities are important and immensely helpful, there are limitations you should know.
Sales tax automation software is an effective tool, but it works best as a complement to your process—not as a comprehensive, stand-alone solution. There are still three areas where it helps to have people involved.
One of the first things to be aware of with state sales tax automation is that these solutions provide tax recommendations that are only as good as the data they have available to them.
Basically, if your own determinations aren’t up to snuff, then your automation software will feed you recommendations that could cost you. You should always check these solutions against expert recommendations to ensure that they are giving you good information.
Physical and economic nexus recommendations are more nuanced than most automation software can account for. Sure, it takes the date your nexus footprint began in an area and calculates your tax liability. But fully automating the recommended steps could result in your business taking actions that aren’t in your best interest. There are many other factors at play here and taking an automated software recommendation at face value could cost your company six, even seven figures.
It pays off in the long run to consult with an expert.
Speaking of consultations, sales tax automation also falls short in this area. It can handle all the complex data storage, application and reporting just fine. But you have to know what to do with that information. It’s important to have an expert sort through all that data to give you actionable recommendations.
On top of that, automation can’t help you fight an audit. Creating and storing reports is only part of what it takes to get through an audit. It truly takes an expert to give you the advice and the confidence to be able to get through a sales tax audit unscathed.
There are a lot more considerations to your sales tax compliance than just applying the right tax rate to purchases, which is why automation has not completely phased out sales tax consultants—and likely never will.
At the end of the day, it takes a sales tax expert to give you peace of mind.
Automation may apply the right rate and make the right determinations, but you might need an expert to check those figures and make sense of it all, so you know what steps to take next. When you have questions or the occasional error, you have the peace of mind that they will be answered and caught. Businesses that take a hybrid approach to their sales tax process get the best of both worlds and are better off for it.
State sales tax automation software has come a long way, and it does a lot of good for a lot of businesses. When combined with the expert advice of a sales tax consultant, it does even better.
If you want to know how automation can help you, we should chat. Peace of mind is a short “What’s Next?” call away.
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