Practice Management Small Business

Help Your Clients Stay Compliant — With Sales Tax Automation

Written by Diane Yetter

When it comes to sales tax, getting to the point where you know the jurisdictions where you have nexus and are ready to start collecting tax is often no small feat. You resolved the sales tax nexus issue, now what? The next step is to implement a sales tax automation solution tailored to fit your or your client’s business needs – and the good news is that such technology has grown both more sophisticated and affordable in recent years.

With only so many hours in a day, it can feel like there simply isn’t enough time or resources to help your clients stay on top of all their sales and use tax obligations – especially if they are operating in several states.

How are you supposed to monitor state nexus legislation and keep track of regulations, rulings, and cases that could impact tax collection requirements? It can be daunting, especially when this constant research is in addition to monitoring activities in the states.

New Landscape of Automated Sales Tax Solutions

The perceived burden on remote sellers that might result from complying with sales tax collection requirements in multiple jurisdictions was a key issue in the foundational U.S. Supreme Court sales tax case, Quill Corp v. North Dakota. But remember, the Quill case was in 1992.

Sales Tax Automation Compliance

The sophisticated technology available today bears no semblance to what existed in 1992 and has greatly reduced collection burdens. Sales tax automation has come a long way and can affordably track collection rules, collect taxes owed, remit the taxes, and comply with other sales tax requirements.

If you are a business owner who hasn’t evaluated automated sales tax solutions or an advisor who hasn’t yet encouraged clients to explore automation options, now is the time to address this issue – there is really no excuse!

No matter how many seemingly more pressing matters are piling up in the business, delaying or procrastinating regarding the implementation of sales tax automation tools could result in serious consequences down the line.

Sales Tax Technology Critical to Increased Productivity

Automated sales tax processes can result in tremendous time and money savings, as well as reduce risks of human error due to manual entry. Plus, there’s the added benefit of having highly organized records in case an auditor comes knocking.

According to a survey done on behalf of Accountex by CPA Trendlines, in talking to over 400 CPA firm owners, 85% of purchasers of sales tax technology found it “highly important” to increasing their productivity. The survey also found that a majority of respondents anticipated their spending on sales tax technology would increase in 2018.

Sales Tax Automation Compliance

Features to Look for in Sales Tax Automation Tools

Clearly, CPA firm owners are on to something. And this is definitely the time to start looking at tools and technology. But what are the features or tools included in sales tax automation systems that will help you or your clients increase productivity? Where will time and effort be saved?

The first step is making sure your clients have a good system in place for calculating the sales tax. If they make direct sales (as opposed to on a marketplace platform), they need the ability to calculate the tax on their POS, e-commerce, or billing system. By helping them select the best system for their needs (based on the system they are integrating to, their industry, and the jurisdictions in which they operate, among other factors), this will pay dividends when it comes time to report and file the monthly returns.

Several features streamline sales tax reporting requirements, including completing and filing sales tax returns. Because many sales and use tax returns are filed monthly and within a very short period of time each month (about 10 days), having a tool that helps integrate the data for sales and tax collected directly into a compliance tool can reduce potential headaches month after month.

Exemption certificate management for sellers is a big responsibility, particularly if large volumes of tax-exempt sales are regularly made. When customers claim exemptions, sellers are required to maintain the necessary exemption documentation. Luckily, tools like exemption certificate validation tools help sellers validate customer exemption certificates with specific states. These certificates need to be maintained and, in some cases, updated on a regular basis. Paper filing systems can place your clients at risk of not being able to find the certificates needed under audit.

A very handy tool, regardless of whether you purchase a full tax engine, is a sales tax rate database. Such databases keep track of tax rates and include monthly updates. Some can even identify the rates for intrastate vs. interstate transactions, which can save a lot of time for companies making sales in multiple states. This type of tool is helpful if the seller just needs to update rates into their billing or invoicing system.

Resources for Choosing the Right Solution

With the proliferation of sales tax technology, choosing the right solution for your company or client can be daunting. Given that most of the CPA firms Accountex interviewed thought that purchasing sales tax technology was significant to key business functions – such as meeting client expectations and optimizing profitability – the decision should not be taken lightly. The right solution could mean a lot for your business! If you aren’t sure where to start, check out our list of some of our favorite solutions.

Key Takeaway

Sales tax nexus in multiple states will likely require a reliable and flexible sales tax automation system, especially as states continue to roll out new legislation that affects nexus. We will even hear from the Supreme Court this year, whose decision on South Dakota v. Wayfair, Inc. could make sales tax nexus more uniform and collection requirements more straightforward across the states. But regardless, you’re going to need a good sales tax automation system to handle all the moving pieces.

Ask yourself the following questions:

  • Is there anything stopping you from purchasing an automated sales tax solution?
  • How do you help your client evaluate the right solution for their needs?
  • If you or a client does use automated sales tax processes, how have they helped?

Please share your experiences, thoughts, and questions in the Comments section!

About the author

Diane Yetter

Diane L. Yetter, CPA, MST, is a strategist, advisor, speaker, and author in the field of sales and use tax. She is president and founder of YETTER, a sales tax consulting and tax technology firm. She is also the founder of The Sales Tax Institute, which offers live and online courses to educate business professionals about sales and use tax.

Diane works with clients of all sizes and in myriad industries to deliver sales tax services ranging from tax technology to tax policy and planning and training. She also regularly partners with other advisors to help them serve their clients.

As a speaker, Diane is frequently asked to present to industry groups concerning sales and use tax issues. As an author, Diane regularly contributes to various publications, and has published three books and numerous articles concerning sales and use tax issues. She also is the author of the US Sales Tax Chapter for the IBFD VAT Worldwide Research Database. She has also appeared as an expert witness.

Diane is a member of the AICPA, Chicago Tax Club, Chicagoland Chamber of Commerce Taxation Committee, the Practitioner Connection with the Council on State Taxation, and the Institute of Professionals in Taxation. Diane serves on the KU Endowment Association’s Board of Trustees and serves as Past Chair of the Dean’s Board of Advisors, University of Kansas School of Business, where she is also an adjunct professor, teaching topics on state and local taxation and entrepreneurship. Reflecting her expertise, Diane was named one of Accounting Today’s Top 100 Most Influential People in Accounting for 2011, 2012, and 2017. Her Twitter handle, @salestaxinst, is also one of Forbes Top 100 Tax Twitter Handles for 2018.

Diane earned a BS in accounting and business administration from the University of Kansas in 1985 and an MS in taxation from DePaul University in 1994. Prior to founding the company, Diane was a state and local tax manager in the Chicago office of Arthur Andersen LLP, the sales and use tax director for the Quaker Oats Company, and a sales and use tax auditor for the Kansas Department of Revenue.

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