Nobody, other than the taxing authorities, likes taxes. They may be necessary to fund government and education, but taxes, especially sales tax, are viewed as an extra cost by the customers who have them added onto their purchases or services, and as extra work performed without additional revenue by your clients.
In fact, sentiment against sales taxes has always been so intense that one of the sparks setting off the American Revolution was the tax on tea imposed by King George. That being said, sales and use taxes aren't likely to go away at any foreseeable time in the future, if ever.
But besides being unpopular, sales and use taxes can be complex. Many entry-level accounting systems can handle sales tax calculations when your client has only a few locations. But with a client with multiple locations in multiple taxing jurisdictions, sales taxes not only become more complex, but more problematic as well.
One major cause of this complexity is nexus. Nexus arises from multiple taxing authorities attempting to widen the geographic areas where they can collect sales and use taxes.
In the past, nexus generally arose when a client had physical locations in multiple geographic (and jurisdictional) locations.
With so much retail purchasing done online, and even brick-and-mortar businesses adding this mode of sales, the question of nexus is certain to become more problematic in the future.
But nexus -- as complex as it is to determine where it needs to come into play and under what circumstances -- is only one of the problems that makes sales and use taxes so onerous.
Even if your business client isn't subject to problems of jurisdictional authority, sales tax rates change frequently, and so do laws and rules. Even in areas where rates are relatively stable, it's very common in these difficult economic times for taxing jurisdictions to provide sales tax reductions or amnesties for limited periods of time to encourage greater retail activity.
Very large companies frequently have departments and staff dedicated to just the sales and use tax areas. Many of your clients are going to rely on you to advise and guide them in this area.
These complexities make accurate record-keeping a must. Sales tax audits produce a lot of additional revenue for taxing authorities, which makes them frequent. And stepping into the audit arena with incomplete or inaccurate records can present a large liability for your client, or, if you've made an error in this area, for your practice.
This means that the sales and use tax problem needs to be attacked from two directions. On your clients' side of the equation, they need to implement a sales tax system that provides complete and accurate calculations and records.
In many cases this will mean an upgrade to the sales tax capabilities provided in some accounting or ERP systems. In others, it will require your client to install a sales and use tax solution that is compatible with the financial applications that they are already running.
The other half of the solution rests on your shoulders. You need to be in a position to know when the rates and rules change, and make sure that your clients are also made aware of these changes and that their systems reflect any differences.
In many cases, this will require that you add a sales and use subscription or research system to those that your practice might already employ.
Finding a good fit isn't easy. To provide a starting point in your research, we surveyed seven vendors who offer compliance or research products that address sales and use tax products.
Avalara provides sales and use tax tools that are primarily designed to integrate with most of the major accounting and point-of-sales systems on the market. And, for those applications for which Avalara does not already have integration, the vendor's AvaTax API Developers' Tools make it possible to custom-fit the components that Avalara offers to as-yet-unsupported systems.
The core products that Avalara offers are AvaTax Calc, AvaTax Certs, and AvaTax Returns. AvaTax Calc is Avalara's calculation engine. This engine provides necessary features such as address validation, and ties applicable jurisdictional rules and rates to the validated address. The Calc module also determines the taxability of the item being sold, and can prepare reports for internal use, or for filing with the appropriate tax authorities. The return preparation and filing is accomplished by a separate module -- AvaTax Returns.
One area of sales tax audit vulnerability is non-taxable sales. Every jurisdiction has its rules that govern what kinds of entities qualify for exemption from sales taxes. In pretty much every case, the particular taxing authority requires your client to create and maintain a certificate that provides details of why a particular purchaser is tax-exempt.
AvaTax Certs integrates with your clients' financial systems and provides the ability to create, store and manage these certificates, ensuring that they are available when your client needs to validate a customer's tax-exempt status or if they are audited.
Avalara also made two major changes this year to its product lineup. It acquired TTS, the vendor of CertCapture, and introduced AvaTax Consumer Use. At the present time, TTS is continuing to operate at its location in North Carolina.
AvaTax Consumer Use is a use tax solution that is suitable for midsized clients using most of the popular ERP systems, such as Microsoft Dynamics.
A useful resource, even if your client is using another vendor's application, or you just need to verify information for a client, is AvaRates%. This is actually Web-based access to Avalara's calculation engine and provides real-time address verification, and, by using geolocation, gives you the most up-to-date tax rates for that jurisdiction. AvaRates% is free, and should be bookmarked in your browser just in case you ever need it.
Bloomberg BNA Sales & Use Tax Portfolios
For many of your clients, nexus is a major concern, and is just going to become more of one as states look to recover much of the sales tax revenue they are losing to online sales. Keeping track of changes in nexus agreements and tax rates is an intensive and time-consuming process, and most larger enterprises have entire staff just for this purpose.
Your smaller and midsized clients probably depend on you to advise them on these areas, especially if changes in rulings and rates are going to affect them. You, in turn, probably rely on a reporting service such as Bloomberg BNA's Sales & Use Tax Library.
The Sales & Use Tax Library is not a single product, but rather a collection of portfolios containing focused expert analysis in specific areas of sales and use taxes, as well as a number of tools and updates. The four major components of the Library are Sales & Use Tax Navigator, Sales & Use Tax Monitor, Sales and Use Tax Chart Builder, and the Sales & Use Tax Rate Finder.
The Sales & Use Tax Navigator is primarily focused on providing expert analysis of sales and use tax rules and laws. It's organized by state, and includes tax rates, taxable base, and similar complex practice areas. If you also subscribe to Bloomberg BNA's State Tax Portfolios, the Navigator has links to those portfolios where applicable.
To keep you up to date, Bloomberg BNA offers the Sales & Use Monitor, a daily news service that covers all state sales tax laws, rulings and rate changes.
One problem with many of the available services, not just Bloomberg BNA's, is that there's simply too much information being thrown at you. The Sales & Use Chart Builder lets you create custom comparison charts. Lastly, the Sales & Use Tax Library provides a Sales & Use Tax Rate Finder, which is Web-based for timeliness and provides sales and use tax rates for more than 58,000 U.S. taxing jurisdictions.
CCH CorpSystem Sales Tax SaaS
Application vendors are increasingly moving to the Internet to supply their services. This is done under a number of descriptive names -- cloud-based, hosted servicesor, as in CCH's case, Software-as-a-Service. For the most part, there is little, if any, major difference between what is actually delivered. For many clients, this approach is just what the doctor ordered.
No capital equipment investment, no hardware or software maintenance, and applicable rate tables and other updates are handled by the application provider. Because the CCH system is transaction-based, with pricing starting in the hundreds, not thousands, it may be a suitable choice for your smaller clients.
The CorpTax Sales Tax SaaS system consists of three products -- Core, Plus and Pro.
The Core product is just that. It provides the tax calculation engine, taxability mapping and nexus management, and reporting, and integrates with most ERP and shopping cart systems.
If your client needs a more complete solution, Sales Tax SaaS Plus extends Core and includes automated returns, return filing and remittance. The Sales Tax SaaS Pro product is a special edition of the software targeted toward you, rather than the client. It provides your practice with the capability of automating and managing sales tax processing services for multiple clients, and might provide an additional service that you can offer clients and a new revenue stream for your firm.
Sales tax computation, collection and remittance is, by definition, pretty much focused on retailers. There are other entities, such as service organizations, that need to collect sales tax. TaxCloud is not particularly suitable for your clients that fall into that category.
Where TaxCloud is particularly suitable is for those of your clients that engage in electronic commerce, perhaps the fastest growing segment of the retail market. That's because TaxCloud integrates with most e-commerce shopping cart and checkout software.
TaxCloud derives its revenue by filing returns for your client in states that have adopted the Streamlined Sales and Use Tax Agreement. If your client's state is a participating member of SSUTA, TaxCloud can tie into your client's e-commerce system and provide rate lookup and calculation, as well as filing the returns for your clients, and even remitting payment if your client provides them with permission to do so. If the state(s) in which your client operates are not members of SSUTA, TaxCloud can still do the rate lookups and calculations, but must prepare a report for your client, not file the return.
There are 24 states that do participate in SSUTA, so it's pretty likely that your clients will be able to make use of the TaxCloud return preparation and filing service.
Taxware Sales Tax Service
Taxware, established in 1970, is a well-known and respected brand name in the sales and use tax solutions industry. In previous years, these products and services were offered by AVP Systems, then by ADP. In November 2012, the Taxware business was acquired by Vista Equity Partners, and now operates as a stand-alone entity.
The vendor has a variety of products to cover different situations that your clients may have. Taxware Enterprise is basically the vendor's global tax calculation engine. It's available as a SaaS solution, an in-house application, or both for various deployments. Taxware Sales and Use Tax System is an in-house system limited to U.S. and Canadian taxing jurisdictions and tax types.
Taxware also offer its Sales Tax Service, which is a completely outsourced solution for your clients and provides the process from calculation to remittance. Also offered is an Outsourced Returns Service, TaxSolver, which is a returns-generation application, and Tax Content Solution, which is designed to become part of a client's point-of-sale system.
ThomsonReuters ONESOURCE Indirect Tax
(888) 885-0206 ext. 1
ThomsonReuters has divisions that pretty much cover the entire software and research needs of the accounting community. Some of these are more relevant to smaller practices that have small and midsized business clients. Others, such as the ONESOURCE Indirect Tax application, aren't really targeted for that market. Given the breadth of the types of taxes the ONESOURCE Indirect Tax products cover, many large multinational companies have implemented it.
That doesn't mean that you have to set up a complex system for any of your clients to use ONESOUCE Indirect Tax, only that it can handle different sales, use and VAT taxes in almost 200 countries.
ONESOURCE Indirect Tax is not a single application. Rather, it's a SaaS-based set of modules that can integrate with many enterprise accounting/ERP systems. Depending on how it's implemented, the application can provide determination of taxing jurisdictions, applicability and rates. ONESOURCE Indirect Tax can also provide compliance management, with reports, filing and remittance of required returns. Certificate management is another capability of ONESOURCE Indirect Tax.
Vertex Indirect Tax O Series
In many cases, it's true that larger enterprises, especially when they are international, have more complex needs. The Vertex O Series is targeted toward your clients that are in one of the industries, such as retail or distribution, where sales tax, use tax, VAT, and similar taxes are collected for a large number of taxing countries and jurisdictions, and with sophisticated multicurrency requirements.
The application is suitable for use in just the U.S., as it provides up-to-the-minute tax rate determination and calculation.
But as an enterprise solution, the Vertex O Series is also capable of managing your client's tax liabilities across the globe. Depending on whether your client chooses the in-house or SaaS version of the application, the O Series can make the appropriate calculations for jurisdictions located in the European Union, the Middle East, Asia and Africa, as well as for Canadian GST, PST and Harmonized Sales Tax. Both versions of the O Series system provide Web-based access through the Vertex Central application.
Managing a client's global activities from a central location, Vertex Central allows your client to generate reports for audit preparation and conduct rate research.
As with most sales tax systems at this level, the Vertex O Series integrates with your client's ERP system, and works with most of the popular applications, including SAP and Oracle. Along with rate lookup and calculation, the Vertex O Series performs exemption certificate management, and alerts your client to incomplete certificates and those which require renewal.
Ted Needleman writes frequently on software, hardware, and technology-related subjects, and was previously the editor-in-chief of Accounting Technology.
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