During challenging times, businesses constantly seek ways to reduce risk and operating costs. Many organizations are still relying on spreadsheets and manual entry to manage sales and use taxes. The errors associated with such methodology have contributed to negative audit results, subjecting companies to heavy fines and penalties as well as costly corrective labor.
Keeping track of sales and use tax obligations for transactions that are both taxable and nontaxable isn’t as simple as it used to be. While the standard has been updating the rate tables in your ERP system with current rates in each jurisdiction you do business in, that manual process can actually put your company at great risk of a negative and costly audit. The consequences of making mistakes are costly, especially in a time where states are short on revenue and looking to uncollected sales tax to help make up that gap.
If your accountant came to you tomorrow and asked for reports on the sales and use tax you collected in the last 6 months could you easily respond with the correct information? What about exemption certificates?
Can you be sure they’re all valid, up to date, and on the right forms? Now picture an auditor who is questioning the figures on your sales tax returns for the prior three years. How quickly could you show him you’re completely compliant?
For businesses with complex tax obligations, nexus in multiple jurisdictions, selling across multiple product lines, and companies growing and expanding into new locations, managing rate tables can become a logistical headache. There are thousands of rate, rule and boundary changes a year. For some companies, keeping rates and product taxability up-to-date within your ERP can be a full time job. Collecting and maintaining exemption certificates for non-taxable sales can become cost-prohibitive and labor intensive. Add to that a return process that can take up to two weeks of staff time per month for most companies and you can see why a manual process can be inefficient.
If you are relying solely on disconnected tax compliance processes, you may be unintentionally putting an audit target on your back. It is wise to be prepared long before the auditor comes knocking.
In order to provide guidance on effective sales tax compliance; Aberdeen Group surveyed more than 100 companies to identify best practices and current transaction tax management capabilities. Aberdeen’s report determines that best-in-class companies achieve a high-level of success by managing indirect taxes through strategic process re-engineering and software automation.