Integration between sales and use tax software and ERP systems has become crucial for businesses as they expand nationwide and must handle large numbers of taxing jurisdictions. In fact, it would be almost unworkable, says Celia Knowles, CPA, a principal of Wong & Knowles, based in Elmhurst, Ill.
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"One of my clients needed to handle sales taxes on their sales throughout the U.S., and without Avalara's AvaTax sales and use tax software, it would have had to create hundreds of sales tax schedules in its MAS 200 accounting software for the various states, counties, and cities," she says. "And they would have had to know which tax schedule to select for a particular state."
Without integrated software, she adds, the client's efforts to gather the right data would have been fraught with errors, since in many cases it would not know the county or other local taxing jurisdiction its customers were in.
"The client could select the wrong sales tax schedule," Knowles says.
That's the world of sales and use taxes, where the job of calculating, reporting, and remitting levies is more challenging than ever. And as businesses grow beyond their initial geographic markets, they take on more liabilities from countless taxing jurisdictions, state, and local taxing bodies. That increases the pressure on business to sharpen their pencils to figure, collect, and remit more tax revenue.
AccountantsWorld Takes Private-label Approach|
At AccountantsWorld, which sells its software only to public accountants directly, tax professionals can create a private-label version of its tax return preparation and compliance software, Sales Tax Online, for each of their clients.
Running as an application hosted by AccountantsWorld, Sales Tax Online lets both the accountant and the tax client log onto the same system to see updated information.
"All of the tax rate tables are constantly updated behind the scene, and the accountant never has to update the software," says Laurence Zuckerman, CPA, MST, and director of educational services.
Sales Tax Online is priced at $1.49 per return or $149 for an unlimited number of returns per year.
Some accountants offer Sales Tax Online to small-business clients as an alternative to the clients using their own tax software, Zuckerman says. The online application allows for input by clients, but in a collaborative arrangement with a tax professional. "It eliminates time-consuming errors," he says.
A century ago, when state governments started requiring businesses to collect and remit sales and use taxes on transactions, interstate commerce was a relatively quiet affair untouched by today's forces of interstate highways, air transport, and the Internet.
Even businesses were capable of handling sales and use taxes in the early 1900s, they certainly wouldn't be capable of it today. Indeed, while today about 98 percent of businesses do pay sales taxes, only about 65 percent do all that it takes to pay use tax on purchases, says Larry Wilkie, director of the corporate and sales tax division of the Minnesota Department of Revenue.
Fortunately, the software tools for handling tax responsibilities continue to evolve, perhaps finally catching up with the challenges posed by sales-and-use tax liabilities, which have mushroomed into a web of several thousand taxing jurisdictions in the U.S. alone. Throw in international commerce, and value-added taxes represent even more obstacles.
Vendors of sales and use tax software, meanwhile, are leveraging Web-integration technology to provide new levels of capabilities in managing tax liabilities faster and more accurately-whether on a company's own servers or in a Web-hosted environment. More vendors are building integration between sales and use tax software and accounting software within back-end ERP application suites, enabling accountants to automatically push and pull the necessary data between multiple software applications; and more vendors are providing the ability to comply with new tax rules being formed by the states involved in the Streamlined Sales and Use Tax Project. (See related story, page 42.)
New or expanded software functionality also extends into areas such as international taxes, with several vendors offering increased capability in handling value-added tax responsibilities.
Supporting International Operations
Taxware, a Wakefield, Mass.-based division of First Data Corp., offers a sales and use tax system that automatically calculates taxes for sales, purchases, and rentals, and serves as an end-to-end tax-calculation and remittance packages. Many of its users file taxes monthly, and the system allows them to automatically extract data from a previous month to populate data fields for the current month's form.
The company recently upgraded its Taxware Enterprise edition, which can now handle VAT and other consumption taxes for 150 countries.
To better support international operations, the application provides forms in seven foreign languages. "Our tax returns for the European Union are now all in native languages, so users don't have to worry about a translation loss of data," says Tim Walsh, director of product management and application support.
The Enterprise edition provides about 10 standard reports that include transactional analysis, summary data, and analysis by day, week, and month. Users can drill down to the invoice and vendor levels, run reports on particular vendors and invoices and see what was purchased, and make sure that the tax was properly calculated.
The Streamlined Sales Tax Project continues to work on issues to finalize a common system of calculating sales and use tax on goods sold across state borders.
The most pressing issue, which the SST Governing Board planned to address last month was, is an amendment presented by Ohio and Texas, according to board president Scott Peterson. The SST calls for companies without a physical presence in the buyer's state to collect tax on behalf of the buyer's state at that state's sales tax rate under the "destination-based sourcing" system. But Ohio and Texas want a dual system that would allow them to keep their "origin-based sourcing" system of collecting on behalf of the seller's state. Businesses complain the Ohio and Texas amendment would overly complicate instead of simplifying sales tax collection.
The SST Project is also planning to soon name four certified software providers of sales-and-use tax applications this spring, Peterson says. The software, free to users, will be paid for out of collected tax revenue. "The CSPs will be paid a percentage of the tax they collect from sellers," he says, noting that the percentage will decline as the amount of collected tax increases.
Following are status reports of several remaining issues, according to CCH:
Audits. Businesses have expressed concerns that state tax officials could audit purchasers after states have already audited sellers, raising the possibility of issues related to inconsistent records between sellers and purchasers. The audit process has yet to be settled, but states have agreed to include businesses in defining the process. Businesses have suggested that the Governing Board issue a master list of audited SST sellers, then remove transactions involving those sellers from any purchaser use tax audits.
Taxability matrix. Businesses have called for a supplementary matrix with additional details from each state, so that businesses will be less likely to be held liable for tax when they are uncertain about taxability. There is some objection from states, however, over removing liability for products that would still fall within a gray area of taxability.
Exemption certificates. At a recent SST meeting one accountant suggested that any state audits involving records of purchasers' sales tax exemption certificates should be conducted within 14 weeks of the purchase-coinciding with the amount of time that retail locations usually retain those records and eliminating the need for businesses to computerize those records.
As are most vendors, Taxware is working to keep up with changes in the SST, and has developed a product matrix to show tax rules for different items for each of the 19 states involved in the SST program.
To provide audit trails, Taxware stores transaction and sales data in customer records and a sales tax general ledger. "The system can make a determination based on data elements whether or not a transaction was a taxable sale or an exempt purchase, and which general ledger the data should be sent to," Walsh says.
Focus on SMBs
While focused mostly on Fortune 1000 companies, Taxware began partnering with Avalara late last year to give small and midsized business users of AvaTax software access to Taxware's own system for managing international tax.
"We're using their international rates in our engine to deliver the tax rates of 150 countries in our AvaTax Global Edition product," says Avalara president Scott McFarlane.
Avalara, based in Bainbridge Island, Wash., is also expanding its use of Web integration to expand other services for SMB companies.
"Sales tax automation is a perfect application of Web services," McFarlane says. "Anyone can find rates, but what's important is how you take those rates and integrate them into accounting packages and automate calculation and compliance."