From the August 2010 Issue
It’s no secret that most states rely heavily on sales taxes for a large
portion of their revenues, but over the past decade, many state legislatures
have been less inclined to raise the rates for fear of being labeled with a
tax proponent. As a remedy, many of these states have turned to increased fees
or other direct service charges.
Unfortunately, this doesn’t mean that sales taxes have remained anywhere
near stable since municipalities, counties and other special districts also
rely on sales taxes, often as their primary revenue source. The result: Year
after year, there are thousands of sales tax rate changes across the country,
making sales tax compliance one of the most volatile areas for small businesses,
and opening them up to the potential for significant penalties. And while states
may not be raising the state component of their rates as often anymore, they
are increasingly cracking down to protect their share. As an example of this,
New York has actually seen a tenfold increase in criminal sales tax prosecutions
over the past five years, according to the Erie Institute of Law.
At the very small business level, sales tax compliance can be pretty simple.
A business with one physical location and all sales out of that physical location,
and with no deliveries, falls only within the sales tax jurisdiction of their
state/county/city. And most states now have simple online tools for reporting
and even paying these tax collections.
However, as this small business starts to grow, its compliance issues can quickly
become more challenging. Issues such as opening a new physical location, offering
online sales, or providing field options like delivery, service and support
can instantly add new jurisdictions or special taxation rules. Add to this use
tax compliance and managing exemption certificates, and the newly expanding
business may be stunted.
Facing even greater complexity are mid-sized and larger retail concerns, as
well as the many small businesses who’ve found success through e-commerce,
with sales that can expand across the country. With more than 8,000 taxing jurisdictions
in the United States, constantly changing rates is a major issue, especially
combined with evolving legal definitions of nexus that can affect even micro-businesses
that have affiliations with eBay, Amazon and other online sales communities.
While larger businesses often have staff resources dedicated to tax compliance,
small and mid-sized businesses, especially those who turn to accountants for
monthly services, usually do not. So what can they do to alleviate the compliance
headache? Well, there are variations in the types of sales and use tax systems
on the market, and they aren’t necessarily segregated by price point or
size of the business.
Starting with this year’s reviews of sales and use tax compliance programs,
we’ve divided the major products on the market into two categories: Automated
Compliance Systems and Manual Compliance Systems. The difference is in the workflow
needs of the business.
For those with lower volumes or fewer sales taxing jurisdictions to manage,
manual systems provide the tools necessary to keep up with and process reports
and forms. The entity uses its bookkeeping system to assign rates for clients
or areas, but when monthly or quarterly reporting is required, the user exports
the sales and tax data into the compliance system, which then aids in preparation,
filing and payment functions.
For larger concerns with higher volumes, multiple locations or much broader
sales tax jurisdiction exposure, automated compliance systems can free up the
considerable staff resources that would be required to manage the processes
manually. The systems integrate directly with the sales and accounting system
or ERP that the company uses, automatically providing the latest tax rates and
special tax rules to transactions as they are processed or as estimates are
created. These systems often offer advanced options for due-date management,
automated preparation of reporting, collaborative review processes and subsequent
payment. A few of the systems also provide options for full-service reporting
and payment (managed and guaranteed by the tech vendor).
The first step for businesses looking to streamline their sales and use tax
compliance processes, then, is to determine how robust a system they need and
whether the benefits of automation of these processes would be appropriate to
their needs. The next step is trying one or more of the sales tax systems best
suited to them, and finding one that meets their workflow processes.
In addition to breaking the sales and use tax products into two review sections,
we’ve made other significant changes to all of our reviews this year.
Most notable will be the expanded categories and subcategories upon which the
products are evaluated. This allows for a more direct comparison of products
and, we believe, a more valuable review for our readers.
– – – – – – – – – – – – – – – – – – – – – – – – – – –
- Automated Sales & Use Tax Compliance Systems
- Avalara – AvaTax OnDemand
- Avalara is a developer of a wide range of sales
and use tax systems, exemption certificate management utilities and related
services. The company’s flagship automated sales and use tax system,
AvaTax OnDemand, provides a web-based database of sales tax rates, rules
and special taxation issues …
- CCH, a Wolters Kluwer business – CorpSystem Sales Tax Office & Sales Tax Returns Online
- CCH offers several sales and use tax-focused applications
through its CorpSystem business tax and management suite, with the primary
systems divided between rates lookup and calculation, and preparation.
- SpeedTax – SpeedTax Core, Plus
- SpeedTax offers automated sales tax capabilities
for businesses using various accounting, sales and ERP systems from QuickBooks
and the Sage family of products, up through Microsoft Dynamics, as well
as SAP Business One and R/3.
- Thomson Reuters – ONESOURCE Sales
& Use Tax
- ONESOURCE is a high-performance platform for a suite
of tax and accounting products that provide an integrated solution for
corporations managing multiple tax types such as Income, Property, and
Sales & Use.
- Thomson Reuters – Sabrix MTS
- Sabrix MTS (Managed Tax Service), which was acquired
by Thomson Reuters in late 2009, is an advanced managed outsourced sales
and use tax solution for companies with medium- to high-volume sales tax
compliance needs and is best suited for companies that prefer to completely
outsource the sales and use tax process.
- Manual Sales & Use Tax Compliance Systems
- Avalara – TrustFile
- The TrustFile system from Avalara is an installed
program for businesses with sales tax compliance requirements for up to
a few states. The program has been on the market for more than 20 years,
and is designed for electronic filing and payment of collected tax revenues,
but also offers print output options.
- BNA Software – BNA Sales & Use
Tax Rates and Forms
- BNA Software offers multiple options for sales and
use tax compliance, with both CD-based and web-based programs that offer
forms preparation or rate lookup. The vendor’s primary products
for sales and use tax are the BNA Sales & Use Tax Rates and BNA Sales
& Use Tax Forms.
- CFS Tax Software, Inc. – CA and
NY Sales Tax Preparer
- CFS Tax Software has been providing various accounting
and small business software since its founding in 1989, with its most
popular applications including live and after-the-fact payroll and wage
reporting, W-2 and 1099 reporting, and property tax compliance.
- As its name would suggest, eFileSalesTax.com is
a completely web-based sales and use tax compliance system. The program
supports filings to three states (California, Florida and Illinois), with
all subsidiary county, city and special taxing districts included, along
with alternate forms and supporting schedules and worksheets.
— Related Articles —
- Imaging Science & Services, Inc.
– ISSI Tax Compliance Solutions
- Just as sales tax compliance issues grow with the
evolution of a business, so does the issue of managing non-taxed sales that
necessitate exemption certificates.
See inside August 2010
5 Tips for Improving Email Management
Darren has long been a proponent of Apple technologies as reliable, quality products, while I’ve long been an Apple critic, pointing out cost issues and the desire for common computing platforms. So I was surprised when I found myself just as impressed with the iPad as he was. Although we both looked at it from different perspectives, we both agree that the iPad, and future netbook-style devices, will likely play a significant role both professionally and in personal recreational computing.