Sales Tax Automation: An Overview of Sales Tax Software
Choosing the best sales tax software solution for your business can be an intimidating process. There are many options available in the marketplace. Each software choice seemingly has different features designed to separate it from the competition. How do you determine the best sales tax software solution for your business needs?
Our consultants get asked this question frequently. In fact, it’s one of the most popular queries we receive. And here is the answer…it depends on your business’s needs in relation to sales tax collection and compliance.
What Does Sales Tax Software Do?
If you’re reading this post, odds are that you already have an understanding of its purpose and whether your business needs it. If so, you can skip ahead to the next section. Otherwise, here’s a quick synopsis below regarding the three main purposes of sales tax software.
#1. Automates a Business Sales Tax Calculation and Collection Functions
Sales tax automation through software solutions can help business’s sales tax calculation and collection functions. This is important and essential for several reasons.
First, the appropriate tax rate needs to be charged on all taxable sales in states in which the business has nexus. Knowing what tax rate to charge a customer is complex. States are either origin- or destination-based, meaning that sales tax needs to be collected either based upon the “ship from” or “ship to” address.
In addition, the taxation rates are dynamic and rates can change on the first of each month. Keeping up with these nuances and changes manually is essentially impossible particularly if you’re selling into multiple states or you have a large volume of transactions.
#2. Helps Determine Which Items are Subject to Sales Tax
Second, sales tax software helps a business determine which items are subject to sales tax and which items are not subject to tax. Each state drafts its own sales and use tax laws which means that the taxability of items will vary from state-to-state. Even if your entire product catalog consists of taxable items, consider other charges that may be added to the customers’ invoices such as freight, shipping and handling or fuel surcharges.
#3. Streamlines the Allocation and Reporting of Sales Revenues
Finally, once the sales tax has been collected from customers, it must be remitted to the appropriate states and jurisdictions within those states (except for those few states like Connecticut, Indiana and others which have a fixed state-wide rate). Sales tax software is an excellent tool for simplifying and streamlining the process of allocating and reporting sales revenues to the appropriate jurisdictions. Furthermore, many ecommerce solutions even have automated filing capabilities.
How to Determine Which Sales Tax Software is Right for Your Business
When we advise our consulting clients about choosing the best sales tax software for their needs, we start with an overview of the products they’re selling. Certain software platforms as a service (SaaS) platforms are geared towards companies selling specific products. Simply saying you’re an ecommerce retailer is not enough information for our consultants to provide adequate guidance.
Understand Which Products You Sell
We need to have an in-depth understanding of the products you’re selling so we can assign the appropriate category to each product so that it will result in the correct taxability determination by whichever SaaS is selected. This is quite challenging for someone who is not well versed in sales tax law and is the primary reason many clients reach out to Agile’s sales tax consultants when going through this process.
Consider the Cost
The second consideration is cost. Most current software choices for sales tax collection have a tiered cost plan that is driven off the number of transactions that need to be calculated on a monthly basis. Having said that, there are certainly some solutions that are more budget-friendly than others, but like many things in life you often get what you pay for.
Determine Necessary Service Levels
If you have more complex needs or require assistance with implementation, you will have to pay for that higher level of service. While Agile’s sales tax consultants are absolutely not software programmers, we have helped a number of clients through fairly standard implementations and set ups of these software solutions. Let our prior experience be an asset for you.
Other Points of Consideration
In addition to those three main concerns, there are other ancillary concerns as well to consider when selecting the best compliance software for your business.
Examples of other questions to consider include:
- What ecommerce shopping cart are you using?
- Do you need a system to track and store customers’ exemption certificates?
- Will you need to track nexus status in those states where your business is not yet collecting sales tax?
- Do you want the software you select to assist with automatic filing of the appropriate compliance returns, or will that function be handled internally or by a third party such as a CPA or sales tax consulting firm such as Agile Consulting Group?
Discuss Your Software Options with Agile Consulting
Agile Consulting Group is a partner with both Avalara and TaxJar and we have firsthand experience with the other solutions in the marketplace including the popular choices of Sovos, TaxCloud and Vertex. Our sales tax consultants are happy to consult with you as you embark on this important decision. All these software solutions have their pluses (and minuses) and our sales tax consultants will collaborate with you to find the solution best suited for your business.
If you have questions, comments or would like to discuss your software needs and the options available in the marketplace, please contact Agile Consulting Group’s sales tax consultants at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.
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