We’ve previously discussed how the Streamlined Sales Tax (SST) program could potentially benefit your clients, especially if they are an eCommerce seller or have opened an eCommerce channel. In those cases, your clients are likely looking for an affordable and efficient means to become sales tax compliant in those states they may sell but are not physically present. But now it’s time to dig a little deeper and explore an aspect of that program and understand how it can save you - and your clients - time on sales tax.
Certified Service Providers (CSPs) are tax compliance technology providers that work directly with the SST Governing Board and the member states to accurately certify their technology and tax rules. With economic nexus, more sellers have increasing obligations to collect sales tax in multiple states, and when sellers with economic nexus work with a CSP to meet their compliance obligations, the benefits can be substantial. An advisor should stand ready to provide meaningful advice to their clients on whether the CSP program is right for them, and (if yes) which CSP they should choose.
Key benefits of working with a CSP
A few years back, a qualifying seller wishing to use a CSP would need to consider whether they were ready and willing to collect and remit tax in all 24 SST member states immediately. Back then, there was an “all for one and one for all” rule, which required companies to register to collect tax in all 24 member states all at once if they wished to participate in the program. However, that is no longer the case. Businesses are freer to work with their advisors and pick and choose where they are ready to become compliant. For example, if a seller has crossed the economic nexus threshold in five member states and wants to tackle those states right now, they can register just in those five states. If six months later, they need to register in five more states, that’s perfectly fine. Even one year after that, it’s no problem if they need to register in the remaining 14 states.
Every CSP has a different client onboarding experience but in all cases, product taxability mapping will be a significant component. During the mapping exercise, a seller’s SKUs (or material group, categories, etc.) are mapped with the tax categories maintained by the CSP. Accurately mapping a seller’s product identifiers to the identifiers used by the CSP is a critical step in ensuring nationwide compliance and can sometimes feel like a daunting task. With subtle distinctions in the tax treatment of things like food, clothing, drugs, software, digital goods, and alike, and the enormous complexities represented by sales tax holidays, working with a CSP as part of the mapping exercise can be enormously valuable.
3. Certificate management
For companies with an expanding nexus footprint, exemption certificate management can quickly become a tremendous hassle. While a seller may have had an adequate process to deal with their exempt customers in the handful of states where they had physical presence nexus, that process may not be sustainable as economic nexus requirements create a nationwide compliance obligation. Remember, exemption rules (what types of buyers are exempt, what’s a legitimate exempt use, what information must appear on the certificate, when does the certificate expire, etc.) vary from state to state. If a buyer doesn't have their certificates in order, a sales tax audit can get very ugly very quickly. A CSP supporting a company’s certificate management process can make all the difference.
4. Filing and remittance
If a seller selects a CSP, the CSP becomes responsible for the timely and accurate filing of their sales tax returns and the remittance of sales tax funds. When done right, data flows seamlessly from the tax calculation engine into the tax filing module and is effortlessly transmitted to the states. Using a CSP that keeps up-to-date as filing requirements change and evolve, and utilizes skilled tax professionals to review returns and work through any challenges and inconsistencies, can make filing time a breeze.
What to look for in your CSP
There are a handful of companies that are qualified to serve as a CSP and that will perform the required integration, determination and filing obligations for their clients. However, not all CSPs are the same. It’s important for a trusted advisor to understand how all the CSPs operate so they can support their client in making the best possible choice for their business circumstances. Some important considerations include:
1. Does the CSP work in partnership with the taxpayer to mutually determine whether SST is really the best route to compliance for a given company?
2. How does the CSP support the product identifier mapping exercise? How easy do they make it for their clients to get to the precise mapping that ensures nationwide accuracy?
3. Do they have a certificate management solution that's fully integrated with their tax determination processes? Do they have a “managed service” offering that takes certificate compliance off a seller’s plate?
4. Does the CSP assign dedicated filing experts to each customer, ensuring every filing period runs smoothly?
Dedicated CSPs will work with your clients to understand how to optimally use their products to achieve meaningful, affordable and sustainable compliance. Your clients need a CSP that takes a collaborative, partnership-based approach that keeps them safe. It is a serious responsibility and an important choice to make.
“The certified service provider (CSP) program from Sovos is a tremendous value for our clients. It reduces burdens on three critical fronts: personnel, technology and audit risk. Sovos maintains high professional standards throughout the client experience from implementation to filing, regulatory matters and support. For our clients, this means significant cost savings and confidence that things are done right from the start.” - Wade Watkins, Partner, Squire