We recently discussed how you can help your accounting, bookkeeping or tax prep clients prepare for sales tax compliance over the next year. Another important part of that preparation though is understanding some of the top sales tax challenges. Without that knowledge, a small bump in the road could end up creating bigger problems - and costing more money.
Your clients need a streamlined and automated process that can scale to match their business growth. Proper oversight into evolving tax forms guarantees that your clients have every regulatory change covered, easing the burden on internal teams.
As we have discovered through polling data, sales tax filing, determination and exemption certificate management are three key challenges for organizations when it comes to sales and use tax. Let’s break down those speed bumps (according to the responses we received) and how you can help your clients best approach finding solutions for them.
Are the correct sales tax rates being applied?
Your clients need to ensure that their products and services are properly taxed wherever they are sold. But keeping track of every rate and rule change is a real challenge for businesses of all sizes. Especially as using either manual processes or outdated systems can create added pressure. Just over one-quarter (26%) of organizations report challenges with keeping track of rate and rule changes, Sovos data found.
The right tax determination engine can quickly and accurately assist with sales tax filing. It’s also essential for your clients to have a system that can expand as they grow their business - tax shouldn’t be an impediment to sales.
Key considerations for addressing tax rate concerns should include the speed of a tax engine, its scalability and availability, flexible deployment options and whether your client is comfortable with cloud software. Businesses should also leverage a partner who is proactive instead of reactive when it comes to taxability rate and rule updates.
Are sales tax filings challenging?
Sovos research also found that 21% of organizations report challenges with the accuracy of their sales tax returns. An additional 24% stated that determining where they have nexus and monitoring their footprint is the most challenging part of sales tax compliance.
As your clients expand their business, whether through entering new sales jurisdictions or by adding new products, understanding their ongoing tax obligations is essential. But it’s hardly an easy task.
Furthermore, federal, state and local authorities are looking to maximize revenue and shrink the tax gap. Having a seamless connection to an intuitive tax engine ensures all sales tax filings are on time and accurate, every time. Even as businesses grow and rates and rules change, all types of forms will be accounted for.
Organizations may consider adding an automated filing solution to their tech stack or outsourcing the filing process to a third party. Key considerations should include how this software or service can meet your needs today, and also in the future. Additionally, businesses should consider if the new solution can help catch errors before filings are even submitted.
Is the exemption certificate management process disorganized?
Sovos found that 28% of organizations report managing exempt customers and sales as their largest sales tax challenge.
The exemption certificate management process is one that businesses absolutely have to get right. Failure to do so could lead to adverse audit assessments, including penalties and interest. It can also lead to negative customer interactions and the potential of lost business. If organizations are applying tax when their clients have provided an exemption, that will lead to customer dissatisfaction.
Automating exemption certificate management is an essential step to prevent financial risk to your business as manual processes can no longer keep pace with today’s increasingly complex and ever-evolving regulatory environment. Transaction errors and incomplete records can be minimized, the IT costs can be reduced and you no longer have to worry as your business grows - the right management system scales with you and keeps you compliant.
For example, Sovos’ CertManager allows businesses to store and validate exemption certificates in real-time, with the ability to fully automate the process through the Sovos Managed Services team.
After deciding what challenge areas should be addressed by implementing technology, your clients are ready to start the evaluation process. It’s important to define functionality and support requirements your clients’ team needs before speaking with vendors, so as not to waste time on products that won’t support their long-term goals. When in doubt, make sure to ask these seven questions in the evaluation process.