3 Reasons to Automate your Sales and Use Tax Function

3 Reasons to Automate your Sales and Use Tax Function

March Blog Series: Connectivity

Insights from: Cory Barwick (Technical Product Manager at Wolters Kluwer)

Edgewater Fullscope is pleased to announce latest blog post in our monthly partner blog series. This one features an article from Cory Barwick, technical product manager at Wolters Kluwer. Wolters Kluwer Tax & Accounting US is a leading provider of software as well as research and learning solutions for tax, accounting and audit professionals — delivering insightful, industry-leading resources as well as step-by-step guidance. They serve as a strategic partner to professionals, helping them advance their business by providing innovative, integrated and customer-focused solutions.

Many things can be said about a business' sales and use tax function. Simple, straightforward and easy are generally not in that category. Whether you rely on sales tax rate tables built for your Microsoft Dynamics® solution or maintain sales tax rates in a manual way, everyone understands that complying with sales and use tax law is cumbersome. From rates that seem to be in a constant state of flux to understanding cryptic law that identifies products as taxable or exempt, there are numerous traps built into ensuring your business is good in the eyes of state and local taxing authorities.

This leaves businesses with a quandary of how to best approach their sales and use tax function. Well, what if I told you that there is a simple solution to all of your tax problems:  automation with accuracy. Much like payroll taxes, sales and use taxes lend themselves to easy, and accurate, automation solutions from vendors of all sizes geared to exactly what your business needs. The following 3 reasons should help make the decision of whether to automate your sales tax function a little easier.

Efficiency

Often cited as the number one reason that a business chooses to automate any function is to gain efficiency. Automation of the sales and use tax function is no different. Countless hours go into the proper management of sales and use tax, even if you are simply doing nothing but managing tax rate changes. Did you know that in 2014 alone, more than 4,000 sales tax rates changed?  Chances are that someone in your tax department knows that because they receive notices or monitor state websites for changes to tax rates.

To add more pain to the equation, if you are in an industry selling multiple types of products, state law may vary on how those products are taxed. Take for example a simple Snickers® bar. Did you know that some states will exempt a Snickers® bar as food because it contains flour while Twix® may be taxed at normal rates?  Again, someone in your tax department spends precious hours building tax matrices for your company's products.

Imagine getting most of that time back. What could your business do with hours that were tied up in administrative tasks?

Accuracy

Following closely behind efficiency, accuracy is often cited as the next major reason that businesses choose to automate their sales and use tax function. After all, the real problem everyone is trying to solve is a tax problem and not a software problem. Automation without accuracy only makes mistakes happen more quickly.

As more and more businesses buy software to assist in the management of sales and use tax, vendors have been investing in research teams that do nothing but monitor state law for tax rate changes as well as changes in taxability rules. For on premise solutions, you receive all that updated research monthly as part of your update process. Most hosted solutions are now capable of updating rates and rules in real time to better serve the needs of their customers.

Accuracy in sales tax on an invoice also becomes a large customer service issue if the wrong rules are applied. Better still, being accurate and consistent in the way that sales tax law is applied to your business operations can save you thousands of dollars in audit fees, penalty and interest. A recent Aberdeen study noted that 26% of tax managers saw increased audit activities over the course of 2013. As state governments have become more cash constrained, it is only logical that state audit activity will continue to rise. Wouldn't it be nice to not have to worry about audits impacting your cash flow?

Holistic

As with payroll tax outsourcing, the same holistic approach can often be gained by automating your sales and use tax function. Most software vendors these days offer a comprehensive returns platform that allows businesses to not only automate the calculation of sales tax but also the administrative tasks of preparing, and sometimes even filing, sales and use tax returns.

While it is true that most providers of returns software work best with their corresponding tax engine, it should be noted that they can generally work with various external data sources. The practice of outsourcing sales and use tax return preparation and filing used to be something that only public accounting firms were in the business of doing but as technology has progressed, many software vendors are offering comparable services at a fraction of the price.

If you find that you are spending too much time managing your sales and use tax function via Microsoft Dynamics AX, or if you have received a negative audit assessment, automation may be one big key to solving your problems. If you choose to go down this path, keep one thing in mind:  you are not solving a software problem; you are solving a tax and business problem. By understanding that and working with trusted advisors who completely understand your business needs, you can be successful in taming the sales and use tax beast.

Contact Wolters Kluwer today for more information on software as well as research and learning solutions for tax, accounting and audit professionals.


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