For many companies, when the topic of sales tax comes up, the first response from most of the staff will be, “What’s the big deal? I just need a rate.” But when you ask a Controller or Finance person, their first response is usually, “They don’t understand. It’s so much more than a rate.”
Here’s why different responses in the same company is a problem: Over 70% of the time, the tax and accounting departments aren’t even responsible for managing tax compliance (charging sales tax, collecting exemption certificates, etc…). For many companies, it’s the credit department who carries that burden. This disconnect in how sales tax is managed and by whom, often results in tax rate, taxability, and jurisdiction errors.
What are the common misconceptions around sales tax compliance?
Misconception 1: Sales Tax is Easy
At a recent meeting, we asked our own Avalara sales people to give manual sales tax management a shot. They were given a series of exercises, a set timeframe and one caveat: no Avalara automation tools could be used. They had to figure it out the way most companies do—by downloading rate tables, visiting state websites, plugging numbers into invoicing systems, determining exempt sales and filling out complex tax return forms. No team got it all right in the time allotted. That’s because sales tax is hard. There are countless things that go into ensuring sales tax being done correctly and when you tie in the fact that there are more than 12,000 taxing jurisdictions, thousands of product taxability rules in the U.S., and the rules are subject to change, it’s not easy.
Misconception 2: My ERP Already Automates Sales Tax
Most ERP have built-in sales tax functionality, but it’s very basic. Not only does it require manual work to configure and update, you can’t be fully accurate as most sales tax functions provided by the ERP use zip-code based tax tables to drive the calculation. There is also usually limited support for handling specific sales tax rules tied to sourcing, product taxability or exemptions. In addition, the sales tax reporting available doesn’t expose the data in a format required to support the filing process and some “accounting gymnastics” are still required of the accounting team or CPA to try and pull it all together.
Misconception 3: Sales Tax Automation is only for Big Companies
“My company is too small” or “We only have to collect in one state” are common objections we hear. Companies of all sizes can benefit from sales tax automation as risk is risk whether you have it one state or all states. Also, any time spent on it is wasted time that could be focused on the business versus the pass through activity of sales tax. Factor in a sales tax platform that is delivered as a SaaS solution with pricing based on usage and you have ROI for small businesses all the way up to the enterprise.
The bottom line is, fast, accurate calculation of sales tax impacts customer satisfaction and improves sales. Complete reporting of taxable and exempt sales saves time and lowers audit risk. Without an automated solution within the ERP, calculating sales tax basically requires you to upload rate tables, enter and track sales tax schedules in each applicable city, county, and state as well as rules, rates, and boundary changes. Address validation functionality is limited to ZIP codes, which aren’t always accurate, leading to wasted time tracking down correct addresses and contact information and charges from carriers for undeliverable items. That’s an incredible amount of information for any business to manage manually. This can result in collecting the wrong sales tax and remitting it to the wrong jurisdiction—a mistake that can result in costly audit fines, fees, and penalties.
Luckily, there are compliance solutions that can be turned on within Sage ERP to automatically address these gaps. Problem solved!
When you turn on Sage Sales Tax, the tax decision engine delivers instant address validation and sales tax calculation across multiple states and tax jurisdictions. Geo-location mapping (similar to GPS technology) determines tax rates “down to the rooftop” with exact longitude and latitude for each transaction so the right tax is collected each and every time.
Learn more by reading the free whitepaper, “Compliance in the ERP.”