Introduction

Against the backdrop of mounting sales taxes and ever-changing compliance requirements, businesses are actively seeking ways to cut corners.

But one of the most potent ways a business can reduce its cash burn is by streamlining the process of calculating, collecting, and filing the sales, use, and other indirect taxes levied on retailers.

By automating most of the process and putting in place systems to ensure you are always in compliance irrespective of the jurisdiction, you will have the peace of mind to grow your business without worrying about audits and fines from regulators. The days of over/undercharging customers will also be far behind you. What you will be left with is a tax process that takes up minimal effort and resources.

How exactly does implementing the right system for your sales tax compliance needs lead to enhanced operations, cost savings, and lessened anxiety?

Role of tax vendors and their impact on your business operations

Calculating the sales tax on each product is a cumbersome process in itself. Take into account the thousands of jurisdictions across the US with their own sales tax rates and filing regulations and deadlines, and you are faced with a tax compliance process that drains valuable resources when done manually.

Primarily, the tax vendor helps bring together various disconnected processes involved in meeting your sales tax obligations to create a streamlined workflow.

Using an automated system, companies will know exactly what sales tax to charge based on the location, product category, and transaction value. Along with being able to collect accurate sales and use tax from the customer, the retailer can automatically document the entire transaction for tax filing and handling audits. There’s even software in the market that handles the filing for the company.

According to PWC, a major consulting company, 77% of retail CEOs are worried about keeping up with their tech-savvy customers, so it is worth noting this level of automation can greatly boost the customer experience. Customers highly value accurate pricing and a smooth checkout/payment process, meaning companies will benefit from real-time sales tax calculations.

Beyond providing great customer experiences, companies can also steer clear of regulatory violations like the one Papa Johns, a famed pizzeria, was embroiled in for allegedly charging sales tax on pizza delivery services in a state where it wasn’t applicable.

Companies are fully responsible for being aware of the right sales tax rates and collecting the same from their customer upon each purchase, so the use of an automated system that can accurately gauge the tax rates and keep up with the hundreds of yearly rate changes can go a long way in keeping companies compliant across jurisdictions.

Companies operating in multiple locations will especially benefit by partnering with a tax vendor because they now have to mitigate the tax liabilities borne out of “nexus” or a mere physical presence in a new jurisdiction. States and localities have in place laws that make a company liable to pay their sales tax if they have a remote employee operating in the jurisdiction, attend a tradeshow, have inventory present, or use drop shippers.

Unveiling the Tax Vendor Landscape: The Best Sales Tax Software Systems in the Market

Given the complex regulatory landscape of retail sales tax in the US and the increased push by authorities for real-time reporting, companies need to adopt the best possible solutions for handling their tax liabilities.

Ideally, you need to pick a vendor that specializes in your industry and offers the best value in terms of pricing and features.

Here is a list of the top vendors, their key selling points, and possible drawbacks that will help you make an optimal decision.

• Vertex

  Vertex offers may tax products, and is possibly the best enterprise tax solution that can help streamline the process of calculating, collecting, and filing your indirect taxes in compliance with state nexus obligations.

  The vendor offers real-time calculation capabilities when it comes to sales and use tax, returns, and exemptions. Notably, the software can be integrated with multiple Enterprise Resource Planning (ERP), e-commerce, point of sale, and procurement solutions to facilitate tax compliance across jurisdictions.

  Businesses can further undertake e-filing directly with the relevant tax authorities, saving crucial time and resources.

  It is however worth mentioning that the pricing may not be suitable for many smaller businesses.

• Avalara

  Avalara offers its customers a seamless tax platform to generate automated sales tax returns for $19 per month. Using the cloud-based software, companies of all sizes can get real-time sales tax rates and rules for all locations in the US. Sellers can even effortlessly apply VAT and GST for international jurisdictions.

  One of the vendor’s main value propositions is that their software can automatically remove tax from exempt sales and generate comprehensive exemption documentation.

  Other than that, a lot of integrations are possible with e-commerce platforms, invoicing solutions, ERPs, etc.

  While the starting price for the software seems affordable, businesses need to keep in mind that there are added costs based on transaction volume.

• Taxify, from Savos

  Taxify is the tax expert’s sales tax compliance solution of choice. Apart from helping businesses comply with the 14,000+ tax jurisdictions across the US by automatically calculating the sales tax accurately irrespective of changes in regulations, the vendor is also well-known for empowering companies to be audit-ready by providing compliant documentation. Your business can also have the vendor auto-file your taxes, keeping in line with any changes to the tax code.

  Companies can further scale their operations effortlessly with the solution due to the range of integrations it supports.

  At any point, you can even seek the guidance of their dedicated tax experts to understand the intricacies of the sales tax in your jurisdiction.

  Businesses can access their services starting at $47 a month.

• TaxJar

  TaxJar has the distinction of being a sales tax automation platform that caters especially to companies selling digital or SaaS products.

  Starting at $19 a month, the cloud-based tax software can help businesses stay on top of the sales tax rates and rules depending on their location and file automatic tax returns for sales made on various marketplaces, shopping carts, and e-commerce platforms.

  TaxJar does a remarkable job of alerting retailers when their sales tax threshold is approaching or has been surpassed, leading to increased compliance. The vendor is also quite focused on audit support, providing detailed reports and dashboards.

• Thomas Reuters ONESOURCE

  ONESOURCE is a highly customizable corporate tax software for all your indirect tax compliance needs.

  The vendor offers an extensive database where companies can learn all about the latest tax regulations and global court cases so they can keep up with changing laws. By streamlining the tax reporting process, the software solution also allows companies to handle their sales, use, GST, and VAT liabilities smoothly.

  While the complex system may not be right for smaller businesses, enterprise customers can have it integrated with various ERPs, e-commerce, finance/accounting systems, etc. to stay on top of their retail operations.

• Lovat

  Lovat’s offering for retailers to handle their indirect tax liabilities digitally with minimal effort makes use of geolocation for accurately calculating the sales tax rate based on the jurisdiction.

  Starting at $43 a month, the platform boasts AI capabilities that companies can utilize to predict sales tax liabilities based on historical transactional data.

Selecting the best sales tax software for automated calculation, remittance, and reporting

When it comes to choosing a tax vendor, the primary focus has to be on ensuring compatibility with your business operations and customizability.

Since 2011, an average of 220 sales and use tax rate changes per year has happened, meaning the vendor has to keep updated with the relevant compliance requirements for your product category, jurisdiction, and transaction volumes.

Other than that, the optimal indirect tax vendor will be able to equip you with the following capabilities:

• Accurate, real-time sales tax calculations
• Automatic filing of sales and use tax with the relevant authorities
• Extensive, easy-to-navigate reports and documentation to handle audits
• The ability to integrate with ERPs, accounting software, point of sale software, etc., to predict sales tax liabilities
• Ease of use and reduced cost due to the tax management software being hosted on the cloud

Future Proofing Your Tax Strategy: Staying Ahead of Regulators

Undoubtedly, sales and use tax rates are going to keep changing constantly. The regulators can increase the sales and use tax in your jurisdiction, and you may even face sales tax liabilities in areas where you merely have a remote employee or a warehouse or made a few sales via a third party.

In this chaotic environment, how do you stay ahead of the regulations and make sure every one of your invoices is compliant?

Having an end-to-end approach to tax documentation holds the key to all your compliance requirements.

Companies need to stop manually calculating their tax liabilities and put in place a system that can accurately charge their customers and also constantly keep track of what they need to pay to the authorities. Such a system can bring together information from multiple sources, like online storefronts, affiliate sales, ERP, etc., to give you a clear picture of the sales tax to be remitted based on the jurisdiction’s laws.

Along with the ability to calculate their sales taxes, companies also need the capability to file their returns automatically. This filing needs to take into account factors, including the refunds to customers, sales tax-exempt products/services/transaction amounts, etc.

Conclusion

Selecting the optimal sales tax software is pivotal for businesses seeking to streamline operations and ensure compliance. With solutions from top vendors like Vertex, Avalara, Taxify (Sovos), TaxJar, Thomas Reuters ONESOURCE, and Lovat, each catering to specific industry needs, the choice depends on your unique requirements, be it automation, real-time calculations, comprehensive reporting, or seamless integration.

Systems Guild stands ready to help bridge the gap between your existing tax systems and cutting-edge tax management technology, facilitating your journey towards compliance excellence. Explore more at Systems Guild and embark on a path to streamlined tax management.