It is virtually impossible to stay on top of every sales tax rate and rule change on your own. By various estimates, there are between 7,500 and 14,000 different authorities that impose a sales tax in the U.S. alone! This includes not just counties and cities, but also special purpose districts such as transit, stadium, police, school, and convention, among others.
Knowing this, you can see why many businesses need to implement a sales tax automation system. Businesses that operate in multiple jurisdictions selling items that can have different taxability should implement a sales tax automation system in order to accurately manage their sales and use tax function.
Another important reason to implement a sales tax system lies within your company itself. Think of all the different people that are involved in making sales and use tax decisions within your company. Are you confident that each of these individuals is making the right decision when it comes to sales and use tax? When you think about it this way, you can see that sales tax automation is critical to prevent costly errors.
Selecting a sales tax automation system is a decision you need to get right the first time.So you want to go into the selection process fully informed, knowing all of the options that are available, and confident in choosing the system that best suits your company’s needs. Below are four things you need to know before your company chooses a sales tax automation system.
If your company has made the decision to implement an automated sales tax solution, you first need to understand that you have different options for the type of system to implement. Different companies have different needs, so it’s good to know that there is a system that is best suited for your company.
Your company may best benefit by implementing a bolt-on tax specialty product to interface with the existing sales order/billing system. The industry your company is in might not have a third party solution and therefore a custom-designed system might be the right choice. Or maybe a simplified excel worksheet is the right solution. Realize that there are different choices, and one of them is the right fit for your company’s needs. All of these options are considered automation solutions.
Once you understand the different types of solutions that are available, the most important step is to take an in-depth look at exactly what your business’ needs are. This requires coordination with all the different areas that are involved in the tax determination process such as customer service, sales, order entry, accounts receivable, accounting and of course, tax. And don’t forget requirements include IT requirements like in house or hosted, languages, and what applications the tax solution needs to integrate with. Different vendors provide tools which have differing levels of capabilities. By having a complete picture of your company’s needs, you can select the correct classification of solution.
Yes – this isn’t the first step. You shouldn’t pick a vendor before you’ve done the first two steps! When selecting a vendor for your sales tax automation needs, success depends on performing a comprehensive evaluation of the different vendors that can actually meet your requirements. Don’t waste time talking to vendors that aren’t even true options just because you think they are the leading contender. And one of the biggest frustrations I’ve seen is when a company has a minimum number of providers they have to consider – there might only be 1 or 2 – so if you need to interview 5 – how much time was wasted? A comprehensive evaluation should include demonstrations by each of the vendors using data that is representative of your business. By doing this, you’ll help ensure that the solution you choose will work best for your company’s needs.
Your company’s needs may require you to implement multiple solutions. If there is a need for solutions in different categories such as calculation and return preparation, be sure to evaluate interaction and ease of integration between the different solutions. This is particularly important if you are selecting solutions from different vendors. Ensure they work together, or you’ll have headaches later.
This is just the beginning when it comes to selecting and implementing a sales tax system. For more helpful information about sales tax systems, 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.
This blog post is also published on Linked In: https://www.linkedin.com/pulse/4-things-you-need-know-before-selecting-sales-tax-system-diane-yetter