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How Practical is Artificial Intelligence for Sales Tax? The Future of Sales Tax in the United States

The world of taxation is evolving rapidly, and artificial intelligence (AI) is playing a significant role in this transformation. AI is poised to make a substantial impact in the sales tax field. In the United States, sales tax has long been a complex, data-intensive, and ever-changing landscape for businesses and consumers alike. AI is affecting the way sales tax is collected, managed, and enforced, which will have practical implications for the future of businesses operating in the U.S. Here’s how… 

 

 1. Enhanced Accuracy and Efficiency 

One of the most immediate benefits of AI in sales tax is the improved accuracy and efficiency it brings to the record-keeping tasks. Traditional manual methods of pulling recordings and searching for small details are time consuming and prone to errors, which can result in costly audits and penalties for businesses. AI-powered software can automate the process of pulling information from documents such as invoices and exemption certificates to streamline and speed up time-consuming record keeping tasks and pulling records for audits. This can also reduce the likelihood of errors and ensure that businesses are in compliance with sales tax regulations. But as always, we recommend that you double-check your work! 

 2. Assisting in Research  

So much of our time working in sales tax ends up being spent on research. Whether that is determining sales tax rates, economic nexus thresholds, taxability of different types of items, or one of the many other details relevant to staying compliant. AI can be helpful in this process! AI is best used to get leads in researching the taxability rules of different items. If you begin selling a new product in a new state, AI can set you in the right direction. Then you can continue your research built on that foundation. Think of AI as a guide that can set you in the right direction but does not complete the full journey for you.  

 3. Easier Sales Tax Reporting and Compliance 

AI can streamline the tax reporting process for businesses, making it easier to file accurate and timely tax returns and registrations. With the help of AI, businesses can better identify data so that it can be populated correctly on forms such as returns and registrations. This not only simplifies compliance but also frees up time for businesspeople to evaluate their work and ensure every detail is correct.  

 4. Automatic Manipulation of Data 

Sometimes we have the information that we need, but we could use help with the more administrative side of things. AI can be used to help with categorizing items from a list for product taxability mapping, assigning titles or tags, and overall organization of data. If you are selling two items that are taxed differently, like e-books and physical books, your AI can be set up to separate these items so that they can be taxed accordingly. If AI can take care of this step, more time can be spent analyzing the data and drawing conclusions to help the businesses. Tax professionals can use AI to improve their data organization to detect what future auditors might find. This proactive approach can level the playing field for businesses that play by the rules. 

 5. Improving Selling Systems 

The purpose of a selling system is to streamline the selling process so that you don’t have to deal with each purchase manually. AI helps the tedious tasks in your selling system become even more simplified. One sales tax specific example is using AI to assign taxability to different items and SKUs in a selling system. Automating this part of the process will save time and reduce opportunities for human error.  

 6. Personalized Customer Experiences 

AI can also enhance the customer experience by tailoring communication to individual customers. This can be particularly beneficial for e-commerce businesses, where customers may have different tax requirements based on their location or tax-exempt status. AI can help you communicate the appropriate responses for each customer, providing a seamless and transparent shopping experience. 

 

Taking Caution: Not Even AI Can Keep Up with Sales Tax 

While using artificial intelligence at work can be thrilling and fascinating, you must remember that the information it gives you may not always be complete and accurate. AI systems rely on the quality of information that is fed into them, so the usability of the system varies. 

Depending on the system being used and the questions asked, the AI can have inaccurate or outdated interpretations of sales tax laws. As we all know, the sales tax world is rapidly changing, and AI is not always sophisticated enough to keep up. Not all AI systems have the most current information. On this same note, AI can lead you to the incorrect classification of products. For example, how does AI know if a “red tee” is a t-shirt or a golf tee? They have very different taxability. It’s crucial that you double-check the facts when it comes to AI. Follow up by using state websites or validated sources like the Sales Tax Institute.  

Users have looked into building AI recognition of sales tax forms. However, this is a slow process when you want to ensure accuracy, which you do! Some resources must be built out, which is quite a time-consuming task. When using AI, it’s important to weigh out the time and effort you commit to set up and the actual accuracy of the potential system. Because many of the states use non-standardized formats in their forms, companies have different formats for their invoices, etc., AI might not have the capability to read all of them properly. It’s difficult to know how AI will handle varying scans of paperwork.  

Another key consideration is confidentiality. Anything you post into an AI tool becomes part of its database for future searches. Company propriety information should never be entered. There are private and secure AI platforms that may exist that allow more freedom of use. It is highly advisable to confirm with your leadership what your company policies are as it relates to the use of AI.   

 

The impact of artificial intelligence on sales tax in the United States is undeniable. From improving accuracy and efficiency to enhancing compliance and reporting, AI is revolutionizing the way businesses manage their sales tax obligations. As AI continues to evolve, we can expect even more innovations in sales tax management, further simplifying the process for businesses and ensuring that tax authorities can collect the revenue needed to support essential public services. 

In this rapidly changing landscape, businesses should stay informed about the latest developments in AI-driven sales tax solutions and consider adopting these technologies to stay competitive and compliant in the ever-evolving world of taxation.  

Stay tuned to our news updates and use the following resources to stay up to date: 

Take a look at what sales tax vendors are integrating into their products: 

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Posted on October 23, 2023