From the August 2007 Issue
For small businesses with only one location and no catalog or Internet sales,
preparing and submitting sales tax returns and the funds collected is usually
fairly non-complex. It usually involves a form or two every month or quarterly,
depending upon the jurisdiction. And while many professional accountants may
help their business clients with sales tax compliance issues, it is not often
a core component of their practice. But when a business grows, either through
sales or additional geographic locations, compliance with sales and use tax
for multiple jurisdictions grows increasingly more demanding.
With nearly 8,000 taxing jurisdictions in the United States and Canada, and
more than 450 varieties of state, local and special tax entity returns, it its
nearly impossible to keep up with the widely differing reporting and remittance
requirements, not to mention the hundreds of rate changes that occur each year.
And the volatility of sales tax rates is increasing according to Vertex, Inc.,
which studied tax changes over the past few decades and found that the average
number of U.S. sales tax rate changes per year has grown by 28 percent since
the late 1990s. In 2006 alone, there were 689 rate changes. Failing to keep
up with these changes is not an option since it can result in financial penalties
Sales tax compliance systems have been around for about 20 years and have
expanded to include several web-based versions. The market has grown significantly,
too, with dozens of vendors offering systems that support specific state requirements.
A curious breed, these programs, since they are all pretty much one-trick ponies.
That is, they provide sales and use tax compliance tools but generally no other
applications. This is compared to the income tax preparation market, in which
most vendors now provide suites that include support for all or most types of
entities, along with integrated planning tools and add-on features. However,
there can be significant differences between sales and use tax programs.
Most of these programs are after-the-fact sales tax compliance tools that
support only a few jurisdictions, with sales and tax data from a business’
financial program transferred into the tax system when a return needs to be
processed. Some of these systems offer import capabilities, while others require
manual entry of the data. The programs may have rate lookup functions that make
it easy to check the tax rate in a specific jurisdiction, but they operate as
a completely stand-alone program, while the sales and accounting systems in
use by the business are responsible for applying the appropriate sales tax to
invoices, sales orders and estimates. These programs are available on CD or
through web-based applications and usually cost a few hundred dollars per year
or less, or are offered on a pay-per-filing basis.
For larger enterprises, however, this method is usually too cumbersome. These
businesses, often with multiple locations and sales tax compliance responsibilities
in many jurisdictions, need a more automated system. That’s where real-time
sales tax systems come in, integrating with sales, financial management and
enterprise resource planning (ERP) systems to verify the address and jurisdiction
of a sale and automatically apply sales tax rates based upon the ZIP+4. These
programs automate most of the compliance process, automatically populating and
calculating all returns and providing due date management and review processes.
The high-end systems are available both as traditional installed programs or
as web-based systems and generally support all taxing jurisdictions in the United
States and often Canada, with pricing generally dependent upon the transaction
volume and jurisdictions needed. These programs can easily cost more than $10,000
per year, but the time and labor that a larger business saves can be immense.
A few programs on the market are also geared for use by professional accountants,
allowing the processing of sales and use tax returns for multiple client businesses.
What a business needs from its sales tax compliance program varies extensively
based on the nature of the business, but most small concerns can be well-served
by a simple, inexpensive system that handles only a few jurisdictions. Keeping
up with rate changes should also be a key factor in choosing a package. All
of the systems in this review include rate updates, but they do so in different
ways, with some providing monthly or quarterly CD updates or downloadable tax
tables that the user must install, while the online programs are automatically
updated as needed by the vendor.
Sales tax compliance could get easier in the future, as support continues
to grow for the Streamlined Sales Tax Project (www.streamlinedsalestax.org),
which aims to simplify compliance across the United States. State revenue agencies
are also evolving and making the compliance process easier, with most now providing
some form of support for electronic filing of sales tax returns.
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- Avalara — AvaTax
- Avalara’s AvaTax is a real-time sales and
use tax application that automatically looks up, verifies and posts appropriate
sales tax rates to invoices, estimates and purchase orders.
- BNA Software — Sales &
Use Tax Rates & Forms
- The BNA Sales & Use Tax Rates and Forms program
by BNA Software provides a comprehensive SUT system that covers more than
58,000 taxing jurisdictions in the United States and offers integration
with external programs.
- CCH, a Wolters Kluwer business
— ZIPSales Returns
- Through its Sales Tax Solutions line, CCH offers
several sales and use tax programs, including the CertiTax suite, a high-end,
web-based system that integrates with a business’ financial and
sales applications to provide instant address validation and tax calculations…
- Electronic Sales & Use Tax,
Inc. — eFileSalesTax.com
- efilesalestax.com offers a completely web-based
sales and use tax compliance system that works as an after-the-fact program,
allowing users to input business sales data and tax collections through
a secure online portal that then electronically files with the state.
- FileYourTaxes.com — California
- California Sales Tax provides users with a basic
online sales tax reporting and payment system, with after-the-fact data
entry for entities with California Board of Equalization compliance requirements
(BOE Form 401, with Schedules A and T). The system is designed primarily
for use directly by small businesses, with support for one company per
- Thomson Tax & Accounting
— InSource Sales & Use Tax
- Thomson Tax & Accounting offers several sales
and use tax options through its InSource brand. This includes the Sales
& Use Tax Rate Subscription, which provides monthly updated tax tables
for all jurisdictions in the United States and Canada. The vendor’s
return preparation systems are InSource Sales & Use Tax (ISU) and
the web-based InSource Express RS Sales & Use Tax (Express)…
- Trustfile — Trustfile Sales
& Use Tax
- Trustfile has sales and use tax programs for CT,
FL, GA, IL, LA, MD, NJ, PA, SC, TN and WI, providing complete compliance
for all cities and special taxing districts within those states. The system
includes electronic filing and remittances to supporting jurisdictions.