How to choose the right sales tax automation software

The requirements of transactional tax compliance — 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, filing tax returns, or managing real-time reporting requirements 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, including compliance with e-invoicing rules. 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, especially in the context of e-invoicing compliance.

Incorrect tax calculations and non-compliance with e-invoicing rules can have detrimental effects on businesses. They can result in wasted time and resources spent on fixing errors, government penalties, loss of business momentum, and damaged trust with customers and regional tax authorities. The longer it takes to identify and rectify a tax problem or e-invoicing non-compliance, the costlier the problem becomes. Research estimates that every dollar in tax errors costs an average of $33 to resolve, highlighting the critical importance of getting taxes and e-invoicing compliance right from the outset. Therefore, companies must prioritize compliance with e-invoicing rules to avoid these costly consequences and ensure smooth business operations.

Sales tax automation software and the need for ERP integration

Unfortunately, tax authorities aren’t making tax calculations or compliance 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 the nexus rules. Individual states, counties, and cities have their own ever-changing rates for taxable transactions. Furthermore, the digitization of tax regimes worldwide and continuous transaction controls (CTC) are pushing companies much closer to real-time reporting and remittance, which requires instantaneous, absolute accuracy.

Integrating an e-invoicing solution is crucial for companies of any size to ensure tax compliance in the modern business landscape. By implementing a centralized, automated tax engine fully integrated with a business's enterprise resource planning (ERP) system, businesses can effectively navigate the complexities of tax regulations, including e-invoicing compliance. Integrating tax automation software with the ERP system plays a vital role in maintaining tax compliance. It enables businesses to seamlessly incorporate regulatory updates, jurisdictional changes, and other tax policy data into their operations, ensuring the organization remains up to date and compliant with evolving tax regulations.

Furthermore, ERP integration of tax automation software provides a centralized, cloud-based hub for managing tax-related processes. This centralized approach allows businesses to apply tax policies consistently throughout the organization. By having a single source of truth for tax calculations and e-invoicing compliance, businesses can minimize the risk of errors and discrepancies, ensuring accurate and compliant invoicing practices. This integration not only ensures tax compliance but also enhances efficiency and productivity. With automated tax calculations and e-invoicing processes, businesses can reduce manual data entry, eliminate repetitive tasks, and free up valuable resources. The seamless data flow between the ERP system and the e-invoicing solution enables accurate and timely invoicing while maintaining tax compliance.

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. 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. However, not all tax calculation or e-invoicing 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 essential 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 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 skill set 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.

In addition to industry expertise and ERP system integration, businesses should also consider selecting a vendor that offers an integrated e-invoicing compliance solution. E-invoicing compliance is becoming increasingly important, and having a vendor that can provide a comprehensive solution for both tax automation and e-invoicing compliance streamlines processes and ensures compliance across all aspects of invoicing. This approach eliminates the need for multiple vendors and reduces the complexity of managing different systems. By choosing a vendor that offers a comprehensive and integrated solution, businesses can simplify their operations, improve efficiency, and minimize the risk of errors or gaps in compliance.

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 makes an effort to understand their customer’s unique challenges and capabilities. This knowledge 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 like ONESOURCE Determination 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 customers’ success.