Sales Tax Compliance Using Software as a Service
By Marc D. Mintz, CPA, Marc Mintz & Associates LLC –
December 8, 2016
Are you confident that your clients and/or employer are compliant with their sales tax obligations? Consider the following points:
- More than 10,000 sales tax jurisdictions exist, as many states allow counties and municipalities to assess their own unique levies.
- Taxation of particular goods and services varies state by state.
- Nexus (sufficient physical presence) — including shipping, delivery and office locations — must be considered for each transaction.
- Various exemptions are provided to purchasers based upon their entity type.
- Exemptions are provided to purchasers based upon the nature of an item’s usage.
- Sporadic tax holidays reduce or eliminate sales taxes based upon arbitrary date ranges.
- Even if a vendor does not charge sales tax, a purchaser may still be liable to remit a use tax.
- Digital content often transcends traditional definitions of tangible personal property.
- Electronic commerce blurs the geographic lines regarding questions of physical location.
Fortunately, there are software solutions that automate the immense compliance obligations that frequently surface in these times when even the smallest of companies engage to offer their products and services to a clientele that is national and even international. At their essence, these sales tax services integrate with your accounting, enterprise resource planning, point of sale and e-commerce systems to automatically calculate the proper amount of sales tax to be collected for each customer, by line item, for every invoice.
In addition to traditional sales and use taxes, these service providers are able to calculate and remit value-added taxes, lodging taxes, tourism taxes, occupancy fees, domestic security fees, tire fees, admission surcharges, excise taxes and communications taxes. Not only do these solutions provide the necessary repetitive tax calculations, some of these service providers also offer turnkey outsourced solutions, which include filing and preparation of returns, timely remittance of payments to tax authorities, electronic processing of exemption certificates and even professional consultations.
When deciding on a provider, be certain that the service you select has the necessary application programming interface to connect with the system where your source transactions are being processed. Also make sure the vendor you select has a long history of working with your specific integration. As each sales transaction is processed, your provider will determine if the customer and individual items are subject to tax, make the appropriate calculations, add the proper tax amount to each invoice, and transform your compliance obligations into a more streamlined and much less labor-intensive operation.
To leverage the full power and efficiencies of these services, it is essential to perform due diligence to ensure all the elements required for your particular compliance issues are available with the services you choose. As with any systems endeavor, establishing a comprehensive implementation plan will lay the foundation for a successful outcome. All these services are rules-based systems which need to know the proper zip codes for sell-to and ship-to locations, the items and services you are selling, and which customers are tax-exempt. In addition, you need to confirm that you are registered with the proper taxing authorities and have entered your correct account numbers to ensure proper collection and remittance of the appropriate taxes. Once the setup is correct, these online services will perform with robot-like qualities regardless of the number of transactions you process, the number of unique items you sell or the number of taxing jurisdictions you ship to.
Selecting a service that balances your feature requirements with a digestible level of complexity at a price point to justify your expenditure is always a challenge. Below are a handful of vendors to assist with your search if sales tax compliance as a service is something that can benefit you or your clients.
This article appeared in the November/December 2016 issue of New Jersey CPA magazine. Read the full issue.