Why bother with another piece of software?

You might think that sales tax calculations are relatively simple and that you can easily maintain tables in software or purchase tax tables to update your software on a regular basis. Nothing could be further from the truth. I own and operate a business in Hutchinson, KS. Kansas has point of delivery sales tax. Using zip codes to calculate tax is inaccurate because tax boundaries don’t follow zip code lines. Geolocation is about the only accurate methodology for calculating taxes. For example, my business, my home, my partner’s home, and the homes of my mother, sister and in-laws are all taxed at different rates while sharing just two zip codes. Most software does not have enough capability to deal with the complexity of tax rates.

Your clients probably have accounting products that interface into these popular sales tax products. QuickBooks, most Sage products (MAS 90, Accpac, Peachtree), most Microsoft products (Dynamics GP, NAV, SL, AX), SAP Business One and others have the option to be integrated off–the-shelf with most of these tax products. Proprietary systems are more difficult to integrate, but the CCH, SpeedTax, and AvaTax products do a good job of these more difficult integrations.

It is not productive to file Sales Tax Returns in most businesses, but it is a necessary evil. Most vendors offer a complete turnkey service to accumulate the sales tax transactions, and prepare the returns for every state where you or your clients are doing business. These vendors will do the remission if you contract for the service, and guarantee their calculations and payments. In my small company, the labor saved on filing the Sales tax returns was worth the fees for using the sales tax product.

Many of the new sales tax products are Software as a Service (SaaS) models. Hosting means you only pay for the transactions actually used, and that you have the latest information available with no manual updates of the software. The publishers make in-house versions available for speed and redundancy, but you will be surprised at the amount of volume a SaaS offering can handle. Performance is good enough to not require in-house support generally.

I advise my clients to use sales tax software unless they never do business outside of a few cities in a state without sales tax issues. A pretty good rule here is that if a company does business in more than one state, they will probably have sales tax issues, and sometimes a single city is bad enough that you can’t do taxes manually. Particularly bad states include Colorado, Tennessee, Texas and Kansas.

Why use Sales Tax software? Sales tax compliance adds no value to the business. If a task is not part of the business’ core competency, that function is a candidate to be outsourced. There is an effort to make compliance easier through the Streamlined Sales Tax (SST) initiative. If you are in an SST state, using a product that is certified as a Certified Service Provider (CSP), you can actually avoid most sales tax audits. If you’ve ever had a bad sales or use tax audit you certainly don't want to repeat the experience. Additionally, using a sales tax product, it is easy to expand the business into other states. The software gives you the ability to do business easily in multiple jurisdictions. You will not have to have staff to maintain rates/information or do expensive tax research.

What are some of the best things behind the leading products?

Avalara AvaTax is integrated with many leading mid-market products. They have full assistance filing and payment support services available. Avalara was the first SST Certified Service Provider (CSP). They maintain research staff in-house, and can provide tax research support if your organization has the need. They provide an in-house version if needed, but their SaaS model means /minimum maintenance. They have grown rapidly based on their integrations, and excellent customer service.

CCH Sales Tax from Wolterskluwer has an excellent reputation for accuracy in their research and in compliance. They are a well established and trusted company and their organization has extensive Sales Tax expertise. They actually provide the compliance tables to many proprietary systems. Over the last few years, they have made their ASP calculation, and their flat file database, one of the most robust solutions in the industry. They have a monthly process to update the tax rates and taxability rules. They have support for automating the acquisition, update and management of customer exemption certificates. They have integrated their product into most popular mid-market products.

SpeedTax is a well funded startup that is taking a different strategy than their competitors. They use artificial intelligence to assist with tax rules definition. They have created an on demand, remotely managed, next-generation rules-based calculation engine that automatically drops a correct rate into every new transaction. They have the ability to integrate with both off the shelf with many ERP systems as well as custom software. They can file returns and remittance in multiple jurisdictions. They were the first company to have products certified by SST for both in-house and hosted application.

These products are trusted by a broad number of customers because they have found a complex problem, and solved it elegantly for not a lot of money. If you do not have a sales tax or use tax application in place, you should look to one of these leading publishers.