3 Automated Sales Tax Functions That Can Save You Time and Money

Automation and technology has been swiftly changing the way that businesses handle sales tax processes.

Good thing!

It can often feel like there simply isn’t enough time or resources to stay on top of all your sales and use tax compliance obligations.

You may not have enough staff to manage sales and use tax compliance or other, seemingly more pressing, matters may take precedence. But falling behind on your sales and use tax obligations can lead to serious consequences down the line. So what can you do?

Thankfully there is a solution: Automated sales tax. Automation can save you time, money and headaches and help ensure that you are staying compliant. Having automation correctly implemented can help you avoid mistakes, save time and comes in handy in case the auditor comes calling.

There are a few things you need to understand before selecting your automation system; read more about this in a recent article, 4 Things You Need to Know Before Selecting a Sales Tax Automation System. For now, let’s drill down and examine three of the automation features/tools that are available within those systems so you can see exactly how they can make your life easier.

These automated processes can result in tremendous time and money savings as well as cut down on mistakes that can arise from manual entry.

1. Sales Tax Rate Database

If you need to maintain sales and use tax rates across states and municipalities without using a full tax engine, then a sales tax rate database could be the solution you’re looking for. These databases maintain and provide tax rates for you, even when they change.

Sales tax rate databases typically have monthly updates to accommodate rate changes. This is hugely helpful, as keeping up on sales tax rate changes across the states can be time consuming and error-prone.

There are some things you’ll want to look for to make sure you’re getting the best out of your sales tax rate database:

• Make sure the database differentiates tax types – sales tax vs. seller’s use tax vs. consumer’s use tax.
• Some databases have the ability to identify the rates that apply for intrastate (in-state) vs. interstate (across state lines) transactions. If you have transactions in multiple states, this can be very helpful.
• Some databases use geographic linkage to the sales tax rate – for example, 5 digit zip code, zip code +4, etc. – so you know how to associate the address with the rate.

2. Sales Tax Compliance (Reporting)

Sales tax compliance tools can lead to tremendous time savings month over month. These tools help you with sales tax reporting – determining, reporting and remitting tax liabilities on a timely basis in the appropriate method that the state requires.

Sales and use tax returns are typically due within a 10 day period, and completing and filing returns require a lot of work and data manipulation. On top of that, it’s something that you or your staff need to replicate month after month, so this is one of the areas where automation makes sense and can be a huge help.

These tools can have varying levels of sophistication and automation (vs. manual entry), so make sure to do your research to find which tool is right for your business’s needs. Here a few caveats to consider when choosing a sales tax compliance tool:

• Many taxpayers are required to file their sales and use tax returns electronically with the state. This can become a challenge because you may use the compliance tool to calculate and generate your return, but then you may need to manually key that information into a state website’s portal.  Some of the tools provide export files that can be uploaded to the state e-file system and some states have actually allowed direct integration from the compliance tools.
• Also, some states only accept state-provided forms, so you may not be able to use the form created by the compliance tool. It is important to investigate to know which ones.

3. Exemption Certificate Management

For sellers, exemption certificate management is an important responsibility, but many sellers don’t even realize how big their obligation is!

If you are a seller and you make sales to customers claiming exemptions, you are required to maintain the appropriate exemption documentation. If your business has a large volume of tax-exempt sales, this can become daunting. Fortunately, there are automated tools that make this task easier.

One solution is an exemption certificate validation tool. This is a tool that allows you to do some validation of the customer’s exemption certificate and state registration as well as do more significant reporting.

One thing to consider with this type of tool is what they consider “validation.” These tools generally aren’t going out and validating the specific buyer information with the state to make sure the registration is valid. Usually it will only tell you if the type of exemption is or isn’t valid in the state and if the format of the registration number is valid.  You should also be aware that you’ll need an interface with these tools to link to your tax calculation tool.

Implementing or Improving Your Tax Automation

Automated sales tax solutions can be a good fit for many companies, but selecting the right solution for your business’s needs isn’t something to take lightly. If your business has sales tax nexus in multiple states, there’s a good chance you need a reliable and flexible sales tax automation system. You’ll want to be sure you know what options are available and, more importantly, what questions you need to ask to help you make the right decision for your situation.

For more helpful information about automated tax solutions, download my Best Practices in Transaction Tax Systems Implementation article. This free resource contains valuable information that can help you in the sales tax system selection and implementation process.