By Amiee Keenan, Avalara
Most of the time, when the topic of sales tax comes up, most employees will say, “What’s the big deal? I just need a rate.” But when you ask an accounting person or Controller, the topic is usually met with a sigh and the words, “They don’t understand. It’s so much more than a rate.”
This disconnect can create major audit risk for a business, especially given that so many businesses handle sales tax manually.
What are the common misconceptions around sales tax compliance? Let’s answer some of these burning questions…
Misconception 1: Sales Tax Is Easy
Sales tax is hard. There are countless things that go into ensuring sales tax is being done correctly and when you tie in the fact that there are more than 12,000 taxing jurisdictions, thousands of product taxability rules in the U.S., and the rules are subject to change… well, it no longer seems so easy.
Misconception 2: My Platform Already Automates Sales Tax
Most platforms have built-in sales tax functionality, but it’s very basic. Not only does it require manual work to configure and update, you can’t be fully accurate as most sales tax functions provided by the platform use zip-code based tax tables to drive the calculation. There is also usually limited support for handling specific sales tax rules tied to sourcing, product taxability, or exemptions. In addition, the sales tax reporting that’s available doesn’t expose the data in the format required to support the filing process and “accounting gymnastics” are still required of the accounting team or CPA to (hopefully) pull it all together.
Misconception 3: Sales Tax Automation Is Only for Big Companies
“My company is too small” or “We only have to collect in one state” are common objections we hear. Companies of all sizes can benefit from sales tax automation. Risk is risk whether you have it one state or all states. Also, any time spent on manually figuring taxes is wasted time that could be focused on the business versus the pass-through activity of sales tax. Factor in a sales tax platform (such as Avalara) that is delivered as a SaaS solution with pricing based on usage and you have ROI for small merchants all the way up to the enterprise.
The disconnect around sales tax makes sense given that each has different priorities. Ecommerce is concerned with go-live dates and user conversion rates. Finance is tasked with process and precision. Automation actually achieves both. Fast, accurate calculation of sales tax at the point of sale impacts customer satisfaction and improves sales. Complete reporting of taxable and exempt sales saves time and lowers audit risk.