Earlier this year we reviewed top sales tax challenges and some best practices for helping your clients overcome them. But certain industries can be impacted differently when it comes to sales tax. With retail, in particular, changing sales tax rules make it difficult to manage finance and accounting operations when it comes to compliance and risk management. Additionally, the omnichannel environment brings increased complexity with customers making both online and in-store purchases, as well as crossing jurisdictional boundaries.
How can finance and accounting professionals within retail drive efficiency for their company, without sacrificing other key responsibilities? These individuals often have multiple roles, but there may not be proper resources or bandwidth devoted to sales and use tax requirements.
Here are essential approaches to overcoming sales tax challenges in the retail industry.
Understand sales tax obligations
Sovos recently surveyed U.S.-based, full-time finance and accounting decision-makers at retail companies with annual revenues of $25 million or more. Changing sales tax rules make it more difficult for retailers to manage finance and accounting operations from a compliance and risk management standpoint, according to the survey. Thirty-five percent of respondents said the speed and volume of rate and rule changes were the most significant sales and use tax compliance difficulties their department faces.
There is also increased complexity associated with an omnichannel environment, with customers purchasing online, in-store and across jurisdictional boundaries. Just over half of respondents who work at ecommerce-focused organizations said their companies sell their products and services on at least three online platforms or marketplaces. This can lead to more complexity and an increased need for streamlined processes to avoid the risk of error.
When your clients fully understand their sales tax obligations, it can help ensure that all physical and economic nexus requirements are being met.
Identify key pain points
Limited IT resources (34%) and a lack of leadership buy-in (74%) can all impact retailers’ ability to optimize sales and use tax compliance processes, the Sovos survey found. Specifically, 98% said they experience some barriers to improving their sales tax process, with 69% reporting an overreliance on third-party IT service providers and/or internal IT departments.
It’s critical to identify your clients’ bottlenecks that make inefficient processes and increase risks. Different organizations will have different needs, but continually assessing how best to optimize internal processes will streamline sales and use tax filing.
For example, digitizing and automating paper-based or manual processes can help your clients’ businesses stay current. Additionally, integrating current tax management systems with any new sales and use tax platform will also ensure your clients are aware of the latest requirements. Finally, helping your clients assemble a cross-functional team of stakeholders across finance, accounting, tax, and legal departments will allow the team to proactively identify and address potential issues.
Increase efficiency with an automated sales tax solution
Finance and accounting professionals in the retail industry will often have numerous roles within their company, meaning limited resources and bandwidth. Fifty-seven percent of respondents said they don’t have tax preparation and filing software solutions in place, while 59% do not have a tax rate calculation solution to manage sales tax compliance.
Furthermore, 47% said their organization spends between four and five business days each month on sales tax compliance - that’s nearly an entire week. Imagine what your clients could focus on if they were able to cut down on the time spent dedicated to sales tax compliance.
Investing in an automated sales tax solution can help ease that burden. Lacking a dedicated sales tax solution may also increase the risk of error, especially as retailers often operate in and collect sales tax from multiple channels. Disparate tools will also lead to further inefficiencies. Having a centralized, single source of truth for sales tax data across all jurisdictions will provide your clients with the following:
- Improved accuracy and monitoring, reducing compliance risks and operational burdens for finance, accounting and IT teams
- Streamlined audit activities
- No more paper-based processes, creating effective management of exemption certificates
- The assurance that the sales tax charged to customers is accurate across all customer-facing channels, reducing negative client feedback, reputational damage and class-action lawsuits
Your retail clients need an optimized, technology-enabled approach to sales tax compliance. Improved efficiency will lead to better-managed complexity and a significant reduction of sales tax compliance risk.