There’s no doubt that sales tax is complex, especially if you are doing business in various states and jurisdictions. Naturally, one would like to simplify the process of staying compliant across the board. So many people turn to sales tax automation, hoping to “set-it-and-forget-it” and carry on with their lives without being bogged down by the stress of sales tax compliance...
While that would be a quintessential scenario, automated solutions can make mistakes that end up costing your business money if not paired with the proper sales tax professionals.
Let’s start out by stating the obvious; automating parts of the sales tax process can be necessary to maintain compliance. However, automated systems are most effective when the process to follow is clear-cut. Unfortunately, the sales tax process is seldom clear-cut and is typically ambiguous and nuanced.
In many situations, sales tax automation can be counterproductive. To understand more, let’s lay out the sales tax process and how automation can or cannot be applied.
1. Determining and Understanding Your Business Sales Tax Responsibilities
2. Applying Sales Tax to Transactions
Automation can be utilized in many ways through this process. However, you must be cautious when determining the type of automation you will use due to the complexity of this process. If a business is selling tangible personal property (TPP), they can utilize a calculation software which will help with the taxability rules of what is subject to sales tax and where. It can also help calculate the proper tax rate for the jurisdiction the TPP is being sold. Rarely, if the stars align, all you may need is an accurate tax rate. Automation does excel in this area, however, you will want to collaborate with a professional when choosing tax codes within these systems, especially regarding complex sales transactions.
However, fully automating this part of it can cause problems due to the fact that your nexus footprint can and most likely will change. In which case, you will need to update your sales tax software.
3. Filing Sales Tax Returns
Automation can be utilized in calculating and charging the proper sales tax. Nevertheless, human intervention - preferably a sales tax professional - will need to be involved in many situations that will undoubtedly crop up. Automation will fall short when the nexus footprint changes, filing frequencies change, notices appear or other nuances and questions arise.
While automation seems like a straightforward and uninvolved solution, there are inconsistencies and gaps that you need to take into account. This is where you need resources, perhaps an in-house staff member with knowledge of sales tax, who will stay involved to bridge these gaps that an automated solution leaves.
Software solutions may present the illusion that you are saving money and providing a simple solution to a complicated problem. And yet, if it is not managed closely it can cost your business all that money you are “saving” along with additional liability, penalties and fees. It can lead to errors and failed returns.
At the end of the day, it takes a sales tax expert to give you peace of mind around sales tax. While automation may apply the right rate and make the right determinations, you still need an expert to monitor and ensure proper compliance. When you approach automation as a supportive tool to the sales tax process paired with sales tax professionals you find you get the best of both worlds. If you have questions regarding automation, peace of mind is a “What’s Next Call” away.