Implementing integrated sales tax automation software will help your business navigate all of the complex economic nexus and COVID-19 tax policies that have emerged. 2020 was always to include a state tax nexus overhaul of traditional physical presence laws, but coronavirus disruptions have generated a byzantine set of new clauses and exemptions that are time-consuming to track. Deploying a modern solution for managing these requirements and the documentation they impose will enable you streamline your compliance now and post-pandemic.
Tax law is a complicated crossroad of demands, and states desperately try to keep up to date with the realities of their local markets to ensure they reap the benefits of their regional commerce. The rise of web-based exchanges through ecommerce shifted market focuses, which were further exacerbated by the social distancing realities of the pandemic. The only way to keep up with the evolution of regulation and compliance in this new normal is to leverage technology for your sales tax automation.
Here are a few ways that implementing tax automation software will empower you to better manage new and changing tax policies during COVID-19 (and beyond):
Economic Nexus Goes Beyond Ecommerce Sales Tax
Economic nexus has evolved significantly as an idea of de facto reality that eventually became a de jure law, and it can be tough to keep up with all the deviations and variations in collection rules. However, many SMBs and midmarket companies are often unaware of the biggest change to come out of state reactions to the original South Dakota v. Wayfair ruling. While the original purpose of nexus laws was to address losses to previously nontaxable out of state ecommerce, it has since expanded in many areas to include all interstate business past a certain sales threshold.
This eschews the traditional requirements of physical presence and is based solely upon the threshold ceiling of sales revenue, transaction volume, or both. Once your business crosses that line for either the number of transaction or sales value you are subject to economic nexus, and the limits can vary significantly between states and have been subject to change before. The only way to streamline nexus tax obligations is to determine your risk state by state and deploy a system that automates calculation and certificate collection for all future transactions.
COVID-19 Tax Policy Landscape Has Changed and May Continue To
Sales tax collection has consistently remained in flux during the coronavirus pandemic, with huge gaps appearing between counties and municipalities. State and business resources have been stretched as geographies and even whole demographics are affected by COVID-19 differently, and policy continues to transform to meet these difficulties. Even when most state governments can agree to implement similar procedures, many other factors can vary significantly and most are temporary initiatives with strict deadlines.
Leveraging technology to keep up to date with these changes and act on them quickly will significantly help your business better manage shifts in COVID-19 tax policy. Deploying tax automation software will enable you to compare sales against applicable taxes and exemptions within the solution’s database and calculate the remittance seamlessly. It will also allow you to stay updated with filing deadlines and extensions according to customer state, file taxes more quickly and capture all the full audit trail of documentation for each filed transaction.
There are Too Many Exemptions to Keep Track of
There is such a great demand for clarity on tax exemptions that an entire industry spawned around fulfilling them, and the pandemic has only created more intricate clauses. Relief policies have added many, but several others have been modified or outright removed so that your business may no longer qualify for historical requirements. The trouble with assuming an exemption exists is that there is not a lot of room for error with complex sales tax regulations, and mistakes can lead to consequences even more expensive than the remittance.
Tracking exemptions can be tedious work, and unless your system is built for tax automation you will have to still record, enter and transfer all data manually between applications and modules. Traditional accounting and document management solutions will lack the core functionality to process exemptions by themselves. Modern sales tax software, on the other hand, delivers the features you need for streamlined exemption management and nexus compliance.
Paper-based Compliance Processes are Wasteful and Time Consuming
A famous quote attributed to Benjamin Franklin reflects how deeply ingrained tax collection is within society, and the methods and tools for addressing it have evolved over the course of human history. However, just as technology has enabled an unprecedented level of business continuity for many industries in the face of COVID-19, so too has it transformed sales tax compliance. Traditional paper-based operations around calculating, recording and filing generates waste and additional costs from eating up raw materials and billable hours that tax automation software eliminates.
Modern cloud technology allows you to migrate most, if not all l, your processes to a completely digital environment, including bookkeeping, document management and sales tax calculation and filing. Hosting your tax solution through the web grants you flexibility in being able to scale your operations well beyond what is possible with manual procedures. It also ensures that your system receives updates in the background for all incoming changes to data tables, letting you pivot quickly and seamlessly to regulatory changes without losing time to adjusting for new requirements by hands.
Integrating Tax Automation with Your ERP Boosts Productivity
Enterprise Resource Planning (ERP) software is an integral part of supply chain management for larger SMBs and midmarket companies that require comprehensive visibility into their operations. ERP systems are often the core of any manufacturing technology stack as they allow users to capture, enter, and access data across the entire production and distribution chain. However, optimum efficiency requires the right data provided seamlessly through your other stack applications, and how this information is exchanged will greatly impact your sales tax compliance.
Deploying a modern tax automation solution designed for native integration with your ERP will save considerable time on manually recording and reentering information. You will be able to capture visibility from all touchpoints connected your enterprise system, and a cloud-hosted application will allow real-time collection and filing of certificates. Armed with this level of visibility and connectivity, sales tax processing will be a cohesive task instead of a siloed function that drains your software ROI.
Ecommerce with Tax Compliance Improves Customer Experience
COVID-19 has strengthened the case for ecommerce and maintaining a user-friendly online shopping experience – sales tax management should be considered a vital part of this strategy. Even if your customers are technically responsible for paying the tax, they will not be the party audited for collection by the state, and making payment as seamless and integrated as possible will help prevent this from becoming a compliance pain point. That is why your web commerce portals should be able to streamline certificate collecting, keeping the process connected to the digital shopping cart.
Point of sale exemption management is an especially important factor in maintaining that customer experience while avoiding noncompliance. The consequences for removing or applying exemptions incorrectly will always rebound on your business in the end, so an automated process that removes human error from the equation will help you save time and money on processing tax as well from being audited. Ensure that your customer’s shopping cart experience is as quick and seamless as possible while maintaining nexus compliance with the right sales tax software.
Discover How to Deploy Tax Automation for COVID-19 Policies
COVID-19 and the new normal are generating significant shifts across whole industries and forcing state agencies to keep up with the impacts to their critical local markets. Make sure your business can keep up with the evolving tax policies by implementing a modern, cloud-based tax automation solution with the help of SWK Technologies.
Sign up to watch SWK’s recorded webinar here to learn more about the impact COVID-19 is having on tax policies for ecommerce.