Ben Franklin's famous quote about the certainty of death and taxes actually wasn't a comment about taxes on income. In fact, the tax that prompted his reflection was the one that ignited the Boston Tea Party—the tax on tea.
Sales, use and value-added taxes seem to have the same immortality as other taxes.While consumers complain about having to pay taxes on the food and articles they purchase, many of your clients who sell in the retail market have just as big a problem with these taxes.
Sales taxes are fairly easy to handle in the most basic situations—your client has only a few locations, sells directly from those locations (no shipping), and is using point-of-sale or accounting software, which supports user-editable rate tables.
But life is seldom quite that simple. Even in a single location, there are sales tax exemptions for nonprofits that must be documented. And even in a single county or geographic area, there can be numerous different sales tax rates, all of which must be correctly calculated, recorded and reported with the required remittance.
And the complexities are just getting started. Does your client know precisely which goods and services are subject to sales or use taxes and which aren't? A simple misunderstanding in this area can lead to substantial penalties in the event of sales tax audits, which happen with increasing frequency, as localities need greater sources of income.
HERE, THERE AND EVERYWHERE
Sound complicated? If your client thinks that determining taxing authority jurisdiction is difficult, wait until you try and explain the concept of nexus to them.
Actually, while nexus is annoying to most business owners, it isn't a really hard concept to understand. It's a legal term for a taxing authority's ability to collect taxes (in this case, sales taxes) from a company located outside the geographic borders of the authority. As strange as this may seem at first glance, it's really common with many retailers that do a significant amount of sales over the Internet or by mail order. And a client with multiple locations, some outside the state, can be subject to a bewildering number of rates and reporting authorities. Figuring out who gets what and where to send it isn't easy.
But finding and reporting sales taxes aren't the only hurdles your clients face. Depending on the locality and the amount of sales your client has, they can look forward to occasional, or frequent, sales tax audits. If your client hasn't been diligent about tracking sales, rates, and reports and remittances, a sales tax audit can be a harrowing experience.
Another area of compliance is concerned with record-keeping of a different kind. In most taxing jurisdictions, nonprofits frequently have an exemption from sales and use taxes. When the tax-exempt status of the entity is confirmed and approved by the appropriate tax authority, a sales tax exemption certificate is issued, and must be shown (or a copy sent if the sale is not face to face) when the sale is made. The seller is required to make some kind of record of this certification to explain when necessary why sales tax wasn't charged or collected. Failure to perform this record-keeping can make a sales tax audit very expensive.
ONE SIZE FITS ONE NEED
Sales and use tax software is not a single focused application. There are different offerings for different needs. One major and common area is rates and jurisdictions. Being able to single out an applicable rate for a specific tax jurisdiction is a necessity for many sales-oriented clients. Determining if something is even subject to a sales tax, use tax or VAT is another area where software can provide an accuracy and productivity boost.
Many of your clients may use software that requires that the client update sales tax tables when rates or other tax matters change. For them, tax rate update services can be helpful. In some cases, the tax tables can be automatically integrated with a client's accounting system, though this is usually more commonly found with enterprise-level software.
And while some clients may have internal staff with significant experience in sales and use tax matters, many will look to you for help in determining if sales tax software will benefit them, and if so, what kind of software or service will offer the best approach.
To get you started on what might be appropriate for your clients, we looked at nine vendors offering a variety of approaches.
ADP Sales Tax Service for Midsized Businesses
(800) 225-5237 ext. 230
There probably isn't any service company in the world that has more brand recognition than ADP. But while ADP is the first thing that comes to most accountants' and their clients' minds when payroll is mentioned, that does not hold true with some of the other services that ADP now offers.
In many ways, sales and use taxes have significant similarity to payroll taxes. They both have rates that vary according to location and assorted other conditions, and both applications are subject to changes in law, rates and applicability. Familiarity with this type of environment puts ADP in a good position to handle a client's sales tax processing from end to end, including calculation, collection, reporting and remittance.
One major difference between ADP's approaches to payroll and to sales tax is the size of the clients that it supports. Much of ADP's payroll business comes from small and midsized companies. Even a business with just a handful of employees can often justify outsourcing payroll to avoid the time-consuming process of ongoing withholding and end-of-quarter and end-of-year reporting.
With its Sales and Use Tax Service for Midsized Businesses, ADP defines a midsized business as having between 50 and 500 employees. Of course, that's just ADP's estimate of the size of a business that will generate enough transactions to make using its service a viable alternative. That's not to say that ADP will turn one of your smaller clients away if they have a moderately large number of sales in multiple jurisdictions, especially when nexus is applied.
Regardless of how you and ADP define a client, you probably have at least a client or two (or more) that would benefit from outsourcing the sales and use tax process. Given ADP's success in payroll processing, having your client consider them for its sales tax processing might work well.
Many of the vendors in this roundup are fairly targeted in their offerings. Some offer rate lookup tables, others research services, and still others are focused on tax calculation and reporting.
Avalara is not one of these one-trick ponies. It has a product offering that touches a lot of the bases in the sales and use tax process. AvaTax consists of calc, cert (exemption certificate management) and returns, all of which are pretty much self-explanatory. Avalara already supports a large number of accounting systems, ranging from QuickBooks and Peachtree Accounting to Oracle and SAP. There's a software development kit available to integrate AvaTax with applications that aren't already supported.
Avalara is also a Certified Service Provider for the Streamlined Sales and Use Tax Agreement, a multi-state effort to simplify the process of calculating, collecting and remitting sales and use taxes. By registering for the SST, your client will be eligible to use some CSP services for free.
Additional products and services offered by Avalara include AvaRates, a Web-based calculation lookup and calculation engine, and TrustFile, an e-filing and e-payment application for sales taxes.
BNA Sales & Use Tax Portfolios
(800) 424-2838 opt. 3
Some of your clients will have needs beyond just looking up tax rates. That's not to say that products offering tax rate lookup for numerous jurisdictions aren't important, but with a moderately complex business, regardless of its size, there can often be questions on complex tax issues.
BNA does offer a tax rate service, which is fine if that's all your client needs. The Tax Rate Service is available online or as a CD service updated monthly, and provides the rates and other important sales tax information for over 58,000 taxing jurisdictions. The Sales Tax & Rates Exporter lets your client schedule delivery of required rates in a format that can then be imported into many applications, similar to a rate table service. Also available is a Sales Tax Forms Service, which has almost 3,400 of the most-required forms for filing returns, exemption certificates and numerous other useful and necessary forms.
The BNA Sales & Use Tax Portfolios go significantly beyond that. BNA is well known for its research products. The Sales & Use Tax Portfolios provide expert analysis of complex sales and use tax issues that might arise, as well as offering other useful capabilities. Some of these include a Sales & Use Tax Navigator that organizes source materials and analysis by state, a daily Sales & Use Tax Monitor to alert you or your client on stories and developments, the Web-based Sales & Use Tax Rate Finder, and a host of statutes, regulations, rulings and Supreme Court cases that have sales and use tax ramifications.
CCH CorpSystem Sales Tax Solutions
CCH, a Wolters Kluwer business
CCH is a well-known brand in accounting. Many of us grew up with a binder-based reporting and research service that had us replacing pages every week when the updates arrived in the mail.
In more recent times, the research services, now in CD or online format, have been joined by the highly used ProSystem fx Office accountant-oriented suite of applications.
But ProSystem is far from CCH's only software offering: The vendor's CorpSystem applications have been very successful in the enterprise-level corporate market.
CorpSystem Sales Tax solutions consist of both in-house and online products. CorpSystem Sales Tax Online is a SaaS product that provides a front-end solution for determining sales tax applicability and rates, and performing the tax calculations. It integrates with Microsoft Dynamics and there's an SDK available for integrating with other applications. Complimenting Sales Tax Online is Sales Tax Returns Online, which populates the appropriate sales tax returns with data from Sales Tax Online, an ERP system, or Sales Tax Office, which is a tax calculation system useful for exceptionally complex situations.
CCH has other sales-tax-oriented products that may be of interest. One is the CorpSystem Sales Tax Rates and Taxability Database, in which rates are provided at the state, county, city and local taxing jurisdiction level and are updated monthly. CorpSystem ZIPSales provides sales tax lookup by zip code, and the CorpSystem Sales Tax Load Utility allows your client to update sales tax tables into Microsoft and Sage ERP systems.
While many of the CorpSystem applications are designed for your larger clients running ERP systems, CCH hasn't forgotten the smaller business: CorpSystem Sales Tax Online for Intuit QuickBooks provides an online enhancement of the sales tax capabilities of QuickBooks Pro or Premier.
There's an old adage, "You get what you pay for." That's generally true, especially when it comes to "free" goods or services. But generally true doesn't mean always true. That's the case with TaxCloud, which is a free service provided by FedTax.
TaxCloud is a Web-based sales tax rate lookup and calculation service that's designed to integrate with most e-commerce shopping carts through a simple API interface. Numerous e-shopping carts are already integrated. TaxCloud can provide accurate rates and calculations for almost every zip code in the U.S.
TaxCloud's features vary depending on whether a state is a member of the Streamlined Sales Tax Governing Board, and not every state is a member. TaxCloud is a Certified Service Provider, and as such, is paid by the states for which it collects and remits sales taxes.
For those states that are not members, TaxCloud calculates sales taxes in real time, prepares monthly state-by-state reports on taxes collected, monitors and updates changes to rates, manages exemption certificates, and optionally verifies shipping addresses.
For states that are members, TaxCloud adds the ability to seamlessly register sellers with the taxing agencies in all member states, automatically files your clients' sales tax returns, and responds to state sales tax audits.
TaxCloud probably won't be the best solution for all of your clients who need to deal with sales and use taxes. But for the price, it's certainly worth looking at.
Some of the vendors in this survey have a very tight focus on their target market. SpeedTax has designed its offerings to scale well so that they are applicable to a wide range of clients, from small to large. The pricing model for the SpeedTax applications is based on usage, which makes it a practical approach for smaller firms. In fact, one of the vendor's offerings, Sales Tax for QuickBooks, is targeted specifically atsmaller clients, though it also supports QuickBooks Enterprise Edition, so that it can scale up. SpeedTax also integrates with a large number of other accounting and ERP systems, including Dynamics, Sage Accpac and MAS 90/200, NetSuite, Intacct and SAP. There's an SDK available for integration with applications that are not already supported.
SpeedTax has three products in the SpeedTax Manager line. Manage Core is the calculation service, and is integrated into ERP systems as above or e-commerce systems. Expanding on Manager Core is Manager Plus, which adds automated returns, finals and remittance. Finally, SpeedTax Manager Pro allows accounting firms to provide their clients with sales and use tax services. It also lets your practice monitor clients using the SpeedTax service. All of these are provided as SaaS products, which allow easy access and management from multiple locations.
Another management tool is SpeedTax Console, which is used for configuring nexus and product mapping, managing exemption certificates, and tracking client return status. And in the event of your client receiving an audit notice, SpeedTax Audit Pro provides you with audit tools to analyze transactions, review returns and refunds, and perform other required preparation functions.
Tax Technology Services
No accountant wants to face an auditor asking for documentation that a client has been negligent in maintaining. With clients that do a fair amount of sales to exempt entities, this documentation usually includes exemption certificates issued by various taxing authorities. Locating certificates for an audit, or to verify a phone, fax or Internet order when a customer indicates that the certificate is "on file," sometimes turns into a snark hunt.
Tax Technologies Services' CertCapture is a SaaS application that turns paper certificates into an organized online database that allows your client to immediately access an exemption certificate for a purchase, audit or any other purpose.
When your client initially sets up their CertCapture account, they supply Tax Technology Services with copies of all existing certificates that they have on file. As new certificates are provided by customers, these can be easily added to the database. All certificates are automatically verified with CertCapture's nexus tables and expiration matrix to ensure that the certificate is valid.
CertCapture will be most attractive to those of your clients that have a large customer base of exempt entities. To address this, CertCapture is available in four editions, which range from the one-user Silver Edition that can manage up to 500 certificates, to the Enterprise Edition that can accommodate an unlimited number of users and up to 4,000 certificates. As you go up each level, the editions not only handle a larger number of users and certificates, but provide additional features such as exposure analysis and the ability to bulk-print data.
ONESOURCE Indirect Tax
Thomson Reuters has a history of acquiring companies, as well as merging and renaming products. For example, when it acquired Sabrix several years ago, it renamed the vendor's sales tax product Managed Tax Service. These days, Sabrix does not seem to be a separate entity, but instead is simply the managed services part of ONESOURCE Indirect Tax.
ONESOURCE Indirect Managed Tax Services is a Web-based sales tax application that provides determination of rates and applicability, calculation and compliance for both U.S. taxing jurisdictions and the Canadian goods and services tax. It can be easily integrated with many accounting systems, providing a turnkey solution, which is applicable for many of your smaller SMB clients for which the Indirect Sales Tax System might be overkill. At the same time, MST has the capability to support your larger clients as well, when a SaaS approach is deemed to be the best solution. MTS is subscription-based, s
o even your smaller SMB clients may find it a worthwhile solution.
Indirect Tax Determination and Indirect Tax Compliance are targeted at the Global 2000 market. They provide applicability, rate determination, and calculation of both U.S. and global sales, use and VAT taxes. The focus of Indirect Tax is on the Americas, Canada, Europe and the Middle East, Asia Pacific, and other emerging countries, which makes it especially appropriate if you have multinational clients with locations in any of these areas.
Indirect Tax Determination is the actual tax engine, providing rate and applicability lookup and calculation. It integrates with many of the enterprise-level accounting/ERP systems available, such as SAP and Oracle, and there's an SDK available to facilitate integration where it's not currently available.
Indirect Compliance is the forms engine for creating and submitting returns and remittances to the appropriate authority.
Vertex Indirect Tax O Series
Clients with locations in more than one country may need a very different sales tax solution than those with locations entirely within the U.S. The Vertex O Series is applicable for use with clients in the U.S. But it also has the capability to deal with VAT taxes in Mexico, and Canadian GST, provincial sales tax and harmonized sales tax, and it supplies tables and calculations for Central and South America, the European Union, the Middle East, Asia and Africa.
The center of the O Series is built around a tax database that contains current sales and use tax rates for more than 9,000 U.S. taxing jurisdictions, as well as VAT rates and rules for more than 200 countries. This file can be updated monthly via a download from Vertex's server. The O Series is integrated with all of the leading ERP systems, though if your client doesn't use SAP or Oracle, it's best to check with Vertex about integration.
In addition to determination and calculation, the O Series also provides exemption certificate management.
Keep in mind that the O Series is basically a rate determination and calculation application. The return and remittance functions will need to be accomplished in a different application. Some ERP systems have this capability, and Vertex also has its own Vertex Sales and Use Tax Returns software to produce signature-ready forms.
Ted Needleman is senior director of the Technical Services Division of Industry Analysts Inc., an independent market research firm and testing laboratory. He was previously the editor-in-chief of Accounting Technology, and writes frequently on software, hardware, and technology-related subjects.
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