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- Sales tax automation software: How to choose the right solution for your business
Sales tax automation software:
The requirements of transactional tax compliance (e.g. sales and use tax, VAT, and GST) have become increasingly complicated and demanding over the years. The only practical solution is fully integrated sales tax automation software tailored to meet the specific tax situation of a given business. Powered by tax automation software, there’s no need to sweat the details of calculating sales tax or filing tax returns because the heavy lifting is done automatically—and correctly—in the background of every taxable transaction and at the end of the month.
It all starts with the invoice.
Every invoice has tax implications, and it is every business’s responsibility to correctly calculate, collect, and remit the tax for each transaction. Tax authorities expect these calculations to be correct, and so do customers. If invoices are incorrect—whether too little tax is charged or too much—these seemingly small mistakes can create a cascade of other problems.
Incorrect tax calculations can hurt businesses any number of ways, from the cost and time wasted fixing the errors to government penalties, lost business momentum, damaged customer trust, and, in some cases, legal liability. The longer it takes to identify and fix a tax problem the costlier the problem gets. It’s estimated that every dollar in tax errors costs an average of thirty-three dollars to resolve, so getting taxes right the first time is crucial.
Sales tax automation software and the need for ERP integration
Unfortunately, tax authorities aren’t making tax calculations any easier. Even seasoned professionals are having difficulty keeping up with constant jurisdictional changes in rates and taxability, which only seem to be increasing in frequency. Court decisions such as Wayfair vs. South Dakota have upended e-commerce nexus rules. Individual states, counties, and cities have their own ever-changing rates for taxable transactions. Furthermore, the digitization of tax regimes worldwide is pushing companies much closer to real-time reporting and remittance, which requires absolute accuracy more-or-less instantaneously.
The truth is that business taxes are a fluid, continuously evolving framework of rules and regulations that no single person could ever hope to keep up with. For companies of any size, the only way to remain tax compliant in this modern business landscape is to implement a centralized, automated tax engine that is fully integrated with a business’s Enterprise Resource Planning (ERP) system. ERP integration of tax automation software is important because it allows regulatory updates, jurisdictional changes, and other tax policy data to be added to the system and applied throughout an organization from a centralized, cloud-based hub.
Tax automation also allows for the consistent application of tax policy throughout a company and its individual business units. With integrated, fully supported, and enabled tax software handling most calculations, any type of tax policy that applies to a business can be quickly captured and applied, providing a single source of truth for all tax calculation and reporting.
The benefits of cloud-based, centralized tax software
Centralized tax technology cloud platforms offer other benefits as well. Businesses expanding into new states, countries, or other jurisdictions can have instant access to applicable tax laws or policy changes that might impact tax automation. Likewise, businesses that operate in different states would no longer need to constantly monitor tax changes in every state because the platform monitors and updates any changes to state tax laws automatically. And because these systems are cloud-based, there are no geographical limitations—tax information is available to any qualified user, anywhere, anytime.
Compared to an in-house, IT-based tax calculation infrastructure, third-party cloud-based tax solutions are more cost-effective, easier to implement, and provide the speed and flexibility necessary to keep pace with the accelerating demands of modern business taxation. But not all tax calculation software is the same, and the difference often lies in the quality of the partnership a business develops with its chosen tax software vendor. Indeed, the level of experience and support a tax software vendor provides is just as important as the software itself, because the two are inextricably linked.
When it comes to sales tax integration, all vendors are not equal
When choosing a vendor, the first thing businesses should look for is a partner with experience in their industry. All major industries—energy, retail, healthcare, pharmaceuticals, insurance, etc.—are subject to numerous regulatory complexities that require deep knowledge of the tax issues involved. A vendor’s understanding of these issues is important because automated tax engines don’t run on magic. The only way the sales tax automation software can perform all the necessary tax functions a business might need is if the company that developed and supports the product knows how to tailor it to address the customer’s specific tax situation.
Next, choose a vendor that understands your ERP system(s) and knows how to integrate their product into the business’s larger IT ecosystem. Developing a tax product is one thing, but knowing how to coordinate it with an array of different systems and IT infrastructures is another skillset altogether. Ensuring that the solution blends seamlessly across the enterprise into each business unit’s workflow is yet another level of expertise that not every vendor can provide.
Flexibility, responsiveness, and accountability
Flexibility matters as well. Some companies have more experience with cloud-based sales tax automation software than others, and some want more control over the implementation process. A vendor that can adapt to provide whatever level of service and support a customer needs is also likely to be a vendor that knows how to listen, and who makes an effort to understand their customer’s unique challenges and capabilities. This is especially important if the software implementation requires an extra level of creativity, complexity, or diplomacy.
The final pieces of the puzzle are accountability and structure. Direct lines of communication between a business and its tax software vendor are vital to the success of their partnership. Assigned roles and responsibilities take the guesswork out of communications, and a consistent, agreed upon schedule for updates ensures that nothing important is overlooked.
Fully integrated sales tax automation software will minimize risk and significantly improve efficiency and accuracy, but only if it is supported by experienced, knowledgeable professionals who are completely dedicated to their customer’s success.
Choose a vendor with a proven track record in these critical areas: tax software development, ERP integration, implementation, and customer support. Anything less and the risk of inaccurate tax calculations may not be the only problem your company needs to solve.