Indirect tax professionals play a critical role in the success of a business. As the pace of new tax compliance challenges accelerates, tax teams need constant access to accurate data that keeps up with changing sales tax reporting rules and complies with ever-evolving regulations. Meeting sales tax reporting and filing obligations is even more complex when your business transacts online.
No matter where companies do business or where customers are located, tracking, reporting, and remitting taxes accurately and on time is a major responsibility.
Implementing best practices for sales tax reporting can help ensure your business has real-time access to accurate content and the latest information, updated as soon as regulations change, so you can feel confident you’re calculating, collecting, and reporting taxes correctly with every transaction.
How to determine your sales tax reporting requirements
Complying with sales tax obligations on a state level is more complex than ever. The South Dakota vs. Wayfair Supreme Court ruling marked a profound shift in the sales tax landscape for companies of all sizes doing business in the United States.
If the business sells goods in any state — even if there is no physical presence in that state and the transaction is conducted entirely online — the company may still be obligated to register, collect sales tax, and file a sales tax return in that state if the economic nexus threshold is exceeded.
With different jurisdictions setting different nexus thresholds, businesses must pay close attention to nexus laws across all 50 states, rather than just those in which they have physical operations.
Economic nexus thresholds bring complexity into indirect tax regulations
While many states adopted the economic nexus threshold that the Supreme Court considered in the Wayfair case — $100,000 in gross receipts or 200 transactions in the state — some states have imposed a higher standard, while some don’t use a transaction threshold.
States also differ in how they measure thresholds. Some use all of a company’s gross receipts, while others just look at gross receipts from taxable transactions. Some include sales for resale, while others don’t. Some measure on a calendar-year basis, while others use a rolling 12-month measuring period.
The products or services your company sells — tangible personal property versus digital goods and services — can also affect the complexity of your sales tax obligation.
Manual sales tax reporting processes raise the risk of regulatory non-compliance
Many corporate indirect tax departments rely on inefficient manual processes that are time-consuming and error prone. Tax professionals spend a lot of time compiling, adjusting, and reconciling data to ensure the accuracy of tax returns and statutory filings.
Increasing sales and rapid growth can cause high rates of errors and omissions. Any inability to anticipate and respond to regulatory changes can leave an organization vulnerable to exposure. The risks of non-compliance with corporate tax obligations include hefty penalties, interest charges, and tax audits.
5 best practices for sales tax reporting
Implementing these best practices for sales tax reporting can help ensure your business calculates, collects, and reports taxes correctly with every transaction.
Understand your indirect tax obligations and the many ways in which sales taxes affect the organization
As an enterprise business grows, calculating, collecting, and reporting for global indirect tax purposes gets more complicated. Depending upon the business, there may be a need to accurately report on sales and use tax, goods and services (GST) tax, value-added tax (VAT), and excise tax — no matter how often the rates or rules change. Businesses may also need to plan responses to market disruptors like changing economic nexus rules and tax regulations.
Developing a comprehensive knowledge of your company’s product line and mapping the products you sell to specific taxability codes allows you to calculate the most accurate sales tax rate for your customers, wherever they are located.
Inaccurate product mapping can lead to tax payment errors. Overpaying taxes means revenue isn’t available for other important investments, while underpaying taxes can result in costly fines, penalties, and audits. Incorrect sales tax reporting can impact product prices, reduce market competitiveness, and cause reputational damage.
Streamline sales tax exemption certificate management
Managing sales and use tax exemptions in multiple states can get complicated. Missing, incorrect, or invalid sales and use tax exemption certificates slows down sales and inflates tax assessments, or even triggers audits.
Thomson Reuters ONESOURCE Certificate Manager manages the accurate tracking and validation of sales and use tax exemption certificates. The tool also optimizes the certificate management process by increasing the efficiency of collection, validation, and reporting on exemption certificates.
Define the metrics by which you measure the success of your tax operation, and thoroughly document all policies and procedures
The 2021 State of the Corporate Tax Department report finds the metrics that tax departments use focus heavily on providing an effective tax function — compliance, meeting deadlines, and the quality of data — while very few metrics relate to the efficiency of the indirect tax department. The most common way to measure efficiency is to see whether costs are in line with the budget. This is an important metric to track, especially when implementing new technology that may support a wider business case toward digitization.
A thoroughly documented onboarding process for new staff, combined with ongoing education and training, can also help organizations reduce errors and improve both the effectiveness and efficiency of tax operations.
Integrate your finance and tax compliance systems for better data quality and deeper insights
Finance and tax processes are interconnected, so the systems that run the organization should be, too. A single, integrated finance and tax platform that acts as a tax data hub can help teams increase effectiveness, drive efficiency, and boost data accuracy.
Interconnected indirect tax systems drive efficiency by eliminating the multiple points of contact with data and allowing for greater collaboration and control. The result is a streamlined sales tax reporting process that provides greater visibility into your organization’s tax position. More important, tax teams that spend less time gathering data can act as strategic business partners who focus on extracting deeper insights and meeting the risk management demands of global tax authorities.
Implement a fully automated sales tax reporting solution
For indirect tax departments, technology has evolved to a point where automating manual tax processes is not just possible — it’s expected. Integrated tax software with automated reporting can improve accuracy, lower costs, increase efficiency, and add control to risky audits.
With an automated solution, when you make one change to your tax system, it automatically flows to all of your systems, accurately aligning them to your organization’s global compliance and business requirements. From a centralized point of control, you can configure systems to calculate indirect taxes in a particular tax jurisdiction, according to specific requirements.
Integrated tax software automates the end-to-end tax automation process, giving teams more time to spend on higher-value activities, like strategic planning and analysis.
What important questions should you ask during your software vendor selection process? Read How to find the best indirect tax software for your business to help evaluate vendors to support your indirect tax automation needs.
Automated sales tax reporting allows companies to:
- Stay up to date with the latest tax regulations
- Know how, when, and where to file tax returns in each jurisdiction
- Deliver a fast, frictionless customer buying experience
- Improve tax filing accuracy and limit IRS over- and underpayments
- Calculate real-time rates every type of indirect tax (VAT, GST, excise, sales, use, and more)
- Minimize the risk of costly mistakes and audits
- Standardize, accelerate, and improve the quality of the sales and use tax compliance process by automating the production of returns and listings from source data to submission
Discover the benefits of an automated sales tax reporting system powered by cloud-based software and API architecture
To succeed in business today, companies must calculate and collect indirect taxes on a transaction-by-transaction basis. The platform a company uses for indirect taxes must always be online and never lose data. As the dominant form of IT infrastructure for companies everywhere, cloud computing technology, helps indirect tax departments scale up quickly, stay tax compliant, improve accuracy on tax calculations, and so much more.
Application program interface (API) architecture also provides indirect tax teams with greater efficiency and effectiveness. An API is a specialized application that functions as a communication gateway between different elements of a technology network — like a translator who facilitates communication between people who don’t speak the same language. It gives a business the ability to quickly and efficiently incorporate tax data into other business processes, reporting, and analysis.
Thomson Reuters ONESOURCE incorporates cloud-based software and an API architecture to automate sales tax reporting processes and streamline tax compliance.
ONESOURCE Determination software allows companies to automate tax calculations on transactions without the headache of keeping up with changing regulations and maintaining an in-house solution. As a cloud-native application, ONESOURCE Determination provides all updates to tax content and software upgrades with no downtime, meaning you can continue to calculate tax without interruption.
ONESOURCE Indirect Compliance standardizes, accelerates, and improves the quality of the sales and use tax filing process by automating the production of returns and listings from source data to submission.
The pace of change in our connected world is only intensifying. More than ever, it’s important to have a solution that can handle manual tasks and deliver the tax information needed faster, allowing an indirect tax team to focus on more strategic value-added work.
Explore our free resources for additional insights on sales tax compliance, indirect tax automation, tax data analytics, and more:
- How to choose the right sales tax automation software
- Tax data analytics for the modern indirect tax department
- 3 ways to create a workflow management strategy for tax compliance
- Are you making the most of your indirect tax data? 10 questions to ask your tax team
- Use automated tax software to safeguard your indirect tax team
- Managing sales and use tax audits