While most people understand that taxes are a necessary part of life, and that they are used to fund services, no one likes paying them. that's understandable -- between all of the business and personal taxes, the tax load on most taxpayers and business entities is substantial.
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But the person or business paying the sales or use tax isn't the only unhappy party in the transaction. The business that is responsible for collecting and remitting those taxes is generally just, if not more, unhappy. For them, the entire sales/use tax issue just means additional work -- and possibly a visit from a sales tax auditor.
For some of your clients, the sales tax problem is a moderately easy one. If your client has sales in just a few locations, many accounting and point-of-sale systems will automatically calculate the rate based on zip code and produce reports that help with the remittance. For many of these applications, when tax rates change, you will either have to edit the tables yourself, or subscribe to a table update service similar to the ones provided for payroll taxes.
But payroll taxes can be relatively simple or mind-numbingly complex, and so can sales and use taxes. Even in those situations where your client has only one location, and doesn't perform sales or services outside that area, there can be many layers of taxes, and each one can have rates that change unpredictably. State, county and municipal sales taxes all have to be recorded and reported individually. Then, of course, there are entities, including most nonprofits and government agencies, that are exempt from being charged sales tax. These require official documentation, usually in the form of an exemption certificate.
And if that isn't enough to make your client consider trading their business for one that doesn't have sales tax responsibility, how about determining which goods and/or services are subject to sales tax? But wait ... we're not finished yet. In an increasing effort to keep sales local, many towns, cities and counties occasionally offer sales tax amnesties for a day or longer. Keeping track of which areas offer these, for how long, and to what extent, adds another layer of complexity to record-keeping and remittance.
I OWE SALES TAX TO WHERE?
Finally, there's the dark side of sales tax (as if there's actually a light side) -- nexus. Nexus is simple in concept, and much more difficult in application and compliance.
Nexus is a legal term for a taxing authority's ability to collect taxes outside of its immediate geographic jurisdiction. In the sales tax area, nexus is frequently applied when a business does a significant portion of its sales-taxable business in one or more physical locations. If all these locations are in the same geographic area, nexus generally doesn't come into play. But with your clients' businesses (or even your own practice that produces locally taxable services) branching out far and wide, nexus is often a concern, and is a considerable source of income for taxing authorities.
It's not all that difficult to explain to a client that they might have exposure to nexus. Just point to a paper or TV ad that states that residents of certain states must include sales tax. But determining nexus liability isn't easy, and like other sales taxes, the laws change frequently. But your client is responsible for keeping up with this information, and complying with them if it turns out that they have nexus exposure.
With this complex mix of rules and rates, having accurate records is a must for your clients. Sales tax audits are frequent, depending on the locality and taxing authority. And if your clients have been the least bit negligent in this area, it can cost them big time in fines, penalties and recalculated back-tax liability.
GETTING THE RIGHT FIT
Software can certainly help your client in this area, but there are different applications that address the different sales tax concerns pointed out above. A very simple business in a single overall taxing jurisdiction with multiple rates and rules might need a different solution than an enterprise client subject to multiple tax authorities and nexus liability.
To help you point your client in the right direction, we surveyed eight companies that provide services relevant to sales tax compliance. It's likely that no one company is going to provide a complete solution for every one of your clients, but having a good idea of where to look for a company that addresses the compliance issues that a particular client may have gives you a leg up in pointing your client in the right direction.
ADP Sales and Use Tax Solutions
Many of your clients already use ADP to outsource all or part of the payroll processing. Conceptually, sales and use taxes are similar to payroll taxes. Both have numerous fields of calculation, varying rates, and rates that seldom remain fixed over the long term. So it's little wonder that ADP also offers a sales, use and value-added tax service in its portfolio.
This service is available on a number of levels and in several different offerings within those levels. ADP delineates its editions for use by midsized businesses and enterprise businesses, and offers complete systems (such as those offered by its payroll editions, or a tax engine that adds sophisticated tax calculation and compliance capabilities to an existing accounting or retail system and can be in-house or host-based).
ADP segregates business size, at least in some of its marketing materials, by the number of employees, which is a relatively common method. Midsized businesses are defined under this criteria as having between 50 and 999 employees, with enterprise companies having a thousand or more.
Don't let this be the criteria that you use for considering ADP for your clients. More important than the number of employees is the complexity of the sales tax situation that the client has. It's quite conceivable, especially given how popular Internet shopping has become, that a much smaller client of yours would benefit from a high-power solution.
Some of the vendors in this roundup have very targeted audiences and products. Avalara has a selection of modules that make up AvaTax that target many of the compliance concerns and are appropriate in a wide variety of your clients, from SMBs to enterprise-level businesses.
These products, which can be purchased or subscribed to separately, include AvaTax Calc, AvaTax Certs, AvaTax Returns, and AvaTax API Developers' Tools for custom integration with applications not already supported by Avalara. The names pretty much describe the function each addresses. Calc is the table-lookup and calculation engine, Returns manages filing and remittance, and Certs allows your client to maintain a database of exemption certificates. These products tie directly into more than 150 accounting, ERP and e-commerce systems. TrustFile provides secure e-filing and e-payments. With more states insisting that sales and use taxes be filed electronically, TrustFile may be a valuable adjunct for your clients.
While the above products are the mainstay of Avalara's offerings, they aren't the only ones. AvaRates has been upgraded to employ a proprietary geolocation technology to provide even more precise rate and applicability determination. Also new this year are mobile versions of the AvaCalc product for the iPhone, iPad and Android phones and tablets.
Bloomberg BNA Sales & Use Tax Portfolios
One of the most pressing concerns is keeping up with the changes in sales and use tax regulation, rates and applicability. Some companies have huge departments to handle just these aspects of the sales tax process. Others have less capability -- and look to your practice to help them maintain compliance.
The Bloomberg BNA Sales Tax & Use Tax Rate Finder offers rates for more than 58,000 jurisdictions. The product can be configured to automatically deliver the rates you or your client need, when they're needed. This service also provides on-screen cues to let you know when unique tax circumstances exist.
Other Bloomberg BNA products address sales and use tax research. Both the Sales & Use Tax Chart Builder and the Sales & Use Tax Navigator fall into this category, providing different levels and approaches to researching issues that may affect your client. The Sales & Use Tax Monitor extends this capability, providing your practice with daily news coverage of all sales tax developments.
CCH, a Wolters Kluwer business
As a cloud-based product, SpeedTax is very appropriate for the small and midsized business market. There's no layout for capital equipment, and software and tax rate updates are handled by SpeedTax, not your client. Transaction-based pricing also makes it an attractive option for your smaller clients.