While this is the time of the year when income taxes capture everyone’s attention, sales and use taxes make themselves annoying all the time.
The ubiquity and variety of these sales and use taxes creates problems for everyone — the customer, your client and your practice. While most accounting software today provides at least some modicum of sales tax tracking, unless your client conducts business in a single taxing authority with fixed rates on all taxable items, the integral sales tax capabilities of many products are just not going to do the job, so your clients (and you) may still need to have a research service in place to determine the taxability of transactions.
And that doesn’t begin to address the necessity of dealing with non-taxable entities such as nonprofits, which have sales tax exemption certificates. If your client has dealings with many entities that have exemptions from sales and use taxes, a software application that stores and tracks exemptions might be worth investing in.
But we’re just getting started. Many of your clients will have multiple locations, or even multiple states or even countries, all with different tax rates, and quite possibly different ideas of what goods and services are taxable and which are not. Add in clients whose sales or services are in locations where there’s one tax piled on top of another, such as state, county and municipal sales taxes, and you have the beginnings of a massive headache.
Worse still, if your client has a significant customer base in other states or even countries, they may be subject to nexus and have to collect sales tax or VAT for those distant tax jurisdictions. Figuring out if your client is subject to nexus in other jurisdictions is seldom an easy task, and is another impetus to add sales and use tax software and research services to your toolkit.
Of course, your client can just take a chance and collect (and remit) whatever seems appropriate. But accurate sales and tax collection records are a must for any of your clients that are required to make such collections. Sales tax audits are a major source of income in many taxing jurisdictions, and poor recordkeeping can place your clients in a perilous position where just a few errors in collection over several days can result in the auditor imposing that error rate over an extended period of time and sales.
It’s possible that many of your larger clients employ a staff to deal with these issues. But many of your smaller clients don’t have the resources to devote to a specialized sales and use tax department and employees. They rely on you to provide this expertise.
That may mean that you need to invest in a research service that can keep you up to date on changes in laws, nexus, and other areas. Or it might be as simple as informing your client of online look-up offerings that are available for free or at a modest cost. Whatever you might select has to work for the particular client, and fit into their capabilities, accounting system and workflow.
The accompanying comparison chart and vendor summaries point out some of the features that each vendor offers and give you an idea of where to start your own research.
There’s one final note regarding the chart. One of the features is participation in the SSUTA — the Streamlined Sales and Use Tax Agreement, which became effective in 2005. Certified providers generally bill the state for their services, enabling them to offer these services to your client at no cost. Currently, 24 states are members, though there is no requirement for vendors to be certified providers in the program. More information on the SSUTA program is available at www.streamlinedsalestax.org.
Avalara offers three major cloud-based products — AvaTax, AvaCert and TrustFile. AvaTax is a comprehensive sales and use tax system offering address verification and sourcing rules that provide geo-positioning for accurate tax rate look up and calculation, product taxability, and reporting. AvaCert is an exemption certificate tracking system, and Avalara provides free certificate templates if your client needs these. Finally, there’s TrustFile, an online filing service that can be used by your e-commerce clients or your practice to file for clients using another tax lookup and calculation system. Avalara states that their software integrates with nearly 500 other software products, and offers an application program interface to create connectors to products they don’t already support.
Bloomberg BNA Premier State Tax Library
Bloomberg BNA’s Premier State Tax Library is somewhat different from most of the other products in this comparison. It does provide lookup and calculation tools, but these are not really designed for heavy use or tight integration with accounting or point-of-sale systems. And the Premier State Tax Library is not a single product, but rather a collection of tools for research and practice aids. Organized into four areas, the Library includes expert analysis with portfolios providing directed analysis of taxes in specific subject areas, practice tools that include custom tax chart builders, working papers, state tax nexus tools and more, a large collection of source documents, and newsletters and special reports.
Wolters Kluwer CCH Sales Tax Office
Wolters Kluwer has a variety of sales and use tax offerings. CCH Sales Tax Office is their in-house solution and provides nexus, jurisdiction, and “situsing” to determine whether an item is taxable, where it’s taxable, and how the tax on it will be calculated. Sales Tax Office also provides the calculation engine, exemption certificate management, and end-of-month compliance reporting.
Also available is CCH Sales Tax SaaS CORE. CORE provides most of the same functionality as Sales Tax Office, but is a hosted solution with a large number of integrations with financial and e-commerce systems.
TaxCloud is a targeted solution for adding sales tax functionality to e-commerce accounting and ordering systems. It can be tightly integrated with more than 50 payment and e-commerce partners and provides the e-commerce system with calculation of applicable tax rates, application of product-based exemptions, and detailed jurisdictional reporting. Additionally, TaxCloud can also manage exemption certificates and automate returns and remittances. These services are free to your clients in the 24 states that participate in the SSUTA program. In states that are not SSUTA members, TaxCloud can perform the sales tax lookup and calculations for a $10-a-month fee, but the client (or you) has to make up and file the reports and remittances.
Thomson Reuters ONESOURCE Indirect Tax
Most of the products in our comparison are meant to be used by small and midsized business clients. Thomson Reuter’s ONESOURCE Indirect Tax is targeted at a more globally oriented enterprise, and is designed to integrate with the ERP systems. The rate and rules database covers sales and use taxes, VAT and GST for the U.S. and Canada, as well as almost 200 counties. ONESOURCE Indirect Tax is not only a stand-alone sales and use tax solution; it’s also part of the Thomson Reuters ONESOURCE platform, an end-to-end corporate tax solution that covers planning, data management, analytics, research, compliance and reporting.
Vertex Inc. Vertex Indirect Tax O Series
and Vertex SMB TaxCentral
Vertex Inc. offers more than a single sales and use tax product. The Indirect Tax O Series is targeted at companies that have significant tax calculation and reporting needs on a global scale. In addition to providing nexus, jurisdictional data and calculations for just about any locale in the U.S. with sales or use taxes, the Indirect O Series also handles sales, use, VAT and other similar tax responsibilities in multiple countries and with multiple currencies. Vertex SMB TaxCentral is targeted at smaller enterprises and SMBs that need comprehensive U.S. coverage of sales and use taxes, and provides exemption certificate tracking, and a returns-only option.