This article is the second installment of a blog series on simplifying sales tax complexity and making the business case for automation. Read our first installment, “Does Your Company Have a Complex Sales Tax Obligation?”
In a post-Wayfair world, it can seem more challenging than ever to understand your sales tax obligations in every jurisdiction where you do business and to keep up with the rapidly changing regulatory landscape. In the previous blog post, we discussed how to determine if you have a complicated sales tax obligation. For this blog post, let’s assume that you worked through those considerations and have decided that, yes, your company does have a complex sales tax obligation.
The tax complexities of interstate and international commerce are why most companies use some form of automated software to help track and calculate their organization’s tax obligations. Using indirect tax software solutions to automate compliance tasks can help reduce risk and increase accuracy, but it requires an upfront investment that may seem cost-prohibitive initially to a growing company. Being conscious of the best time to automate sales and use tax, along with the benefits tied to automating the process, helps make the decision much less of a challenge.
When to Consider an Automated Tax Software Solution
A good indicator of whether you should invest in sales tax automation software is the number of locations where you are doing business. For example, compliance will be more manageable with brick and mortar stores in one state.
If, however, you are operating in a couple of states (or more) and that includes online transactions as a remote seller, the benefits related to automation are significantly compounded, especially when you consider the overarching impact of the South Dakota v. Wayfair decision. Automation guarantees the right indirect tax is being calculated correctly in every jurisdiction where you do business.
Benefits of Sales Tax Automation Software
Vital questions arise when evaluating the place of supply rules, such as:
- Who collects the sales tax?
- Where is the sales tax due?
- Where does my company have nexus?
- Where is my consumer located?
- Have I met the economic threshold in that state?
With an automated solution, all data points are evaluated and processed in milliseconds using requirements set based on your tax footprint and your tax requirements. The results are tested, expected, and applied consistently.
Take into consideration the number of tax rate changes and new tax rates. Now compound that with the number of possible product taxability changes. If you are operating globally, there are specific regulations for the place of supply rules for every country. Additionally, you may be close to meeting the different thresholds maintained on a country by country basis. At that point, more questions arise – should I be registered for VAT or GST? Are there establishment requirements to collect and remit?
An automation solution can automatically evaluate all data points and return an accurate tax calculation for seamless compliance when you cross a threshold in any tax jurisdiction.
What If You Don’t Have a Complex Business Model?
If your company doesn’t have a complex business model, you may wonder if automation will complicate the sales tax process that’s working for you today. Although it may seem counterintuitive, that’s the best time to consider implementing a tax automation solution. If you wait until you meet a state threshold, expand into new territories, or change your business model, it’s almost too late! An investment in tax automation upfront ensures that your business can scale and calculate tax accurately.
Keeping up with various changes by state down to the local levels can be a definite challenge. Still, with automation, you have the assurance of accuracy for every invoice, regardless of complexity.
Want to learn more about handling complex sales tax obligations in a post-Wayfair world? Watch our webinar, “Simplify Sales Tax Complexity: Making the Business Case for Automation.” Check out our free resource hub for more indirect tax insights.