Years ago, it was payroll that produced a cringe whenever it was mentioned. These days, sales and use taxes have moved up to the No. 1 headache producer.
With income tax cuts being one of the most popular ways to garner votes at election time, and real estate taxes smothering much of the home-owning populace, taxing just about anything that you buy has become the major source of revenue in many places. The major difference between sales tax, use tax and value-added tax is the name and what's being taxed, not the concept of taxing goods or services.
Obviously, no one other than the taxing jurisdictions is really happy about sales and use taxes. But beyond all of us who have to pay them, your clients who need to collect them aren't too thrilled about the situation either. Even though many accounting systems have provisions for entering sales tax rates, in many locations the simple tax rate tables that your client creates, or the ones they ask you to create for them, just aren't sophisticated enough to handle the real world.
THE HEART OF THE MATTER
From the client side, the underlying problem is nexus. Nexus is the authority of a taxing jurisdiction to collect sales and use taxes outside of its immediate geographic area. Nexus arises from the simple fact that many transactions that result in sales tax liability are no longer restricted to local businesses. Initially, nexus came into being with the advent of mail order. With customers being able to buy products from a business located thousands of miles away, states with numerous customers of that faraway business were losing significant amounts of sales tax revenue.
If you look at the typical TV infomercial, or order something through the Internet, you'll see that the vendors add sales tax to orders from some states. Those are states that have been able to employ nexus to tax orders from vendors residing in their jurisdiction, even though the seller may be completely outside of their local geographic location.
Nexus is complex, and keeping up with where it comes into effect and under what circumstances is difficult. And with the slow erosion of brick-and-mortar business and an increasing reliance on online sales, this situation is certainly not going to get simpler.
Many states also have county as well as town sales taxes. And in those circumstances, your client is responsible for collecting the aggregate amount of those multiple taxing jurisdictions, reporting the sales and use taxes collected in each, and knowing when rates change, or a sales tax amnesty is enacted.
While it might seem that your client should just collect what seems to be appropriate, accurate computation and record-keeping is an absolute must. Sales tax audits are a major source of additional revenue in many places, and the taxing authorities count on poor record-keeping to leverage their collections. If you've ever gone through one where the auditor happened upon several error-filled days and used that error rate to impose penalties and interest for sales over an extended period of time, you know that you don't want to expose your clients to that kind of aggravation and liability, even if it does result in lots of billable hours for your practice.
Enterprise and multinational companies employ specialized staff to deal with these taxes. Several of the vendors surveyed in this roundup cater to just that type of client. But with your small and midsized business clients, many will turn to you for guidance in this confusing area.
This places you in almost the same boat as your client. They have to have an accurate system to correctly compute, collect and remit sales taxes. And you have to have up-to-date information about where your clients' liabilities lie. This two-pronged approach means that your client has to have a sales tax system that works with their other applications and business workflow, and you need to be able to stay on top of the changes in law, nexus and other areas that can affect your client.
Fortunately, there are excellent solutions available for both your clients, and your own practice. Many of the applications are offered as Software-as-a-Service or cloud-based solutions. This makes perfect sense, since it's likely that the application will need to be accessed from multiple locations. A number of the vendors in our survey are also certified to participate in 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.
We surveyed seven vendors to give you an idea of where to start your own research.
Offered as Web services, Avalara provides a suite of products that are easily integrated with most of the major accounting, e-commerce, and ERP systems. Avalara claims to have existing integrations with over 250 of these systems at the present time. Should one of your clients be using an application that hasn't already been integrated with one of the Avalara applications, the vendor offers a software developer's kit that allows end users to perform their own integration.
Avalara has a suite of products that can be used independently or in concert. At the center of the suite is AvaTax. AvaTax provides rates and taxability judgments for over 10,000 locations in the U.S., and has a global option that provides your multinational clients the ability to perform taxability judgments and calculations in numerous global locations, especially in European Union.
A companion product to AvaTax is MatrixMaster. This provides the ability to use a product's UPC code to trigger the taxability and tax rate calculation at the point of sale. The MatrixMaster database contains the product descriptions and taxability information for millions of items.
While AvaTax is the calculation and record-keeping engine, it does not actually prepare or file your clients' returns. Another Avalara product, Returns, is used for that. Returns allows your client to make one ACH transaction and Avalara will file all of the required returns and make the required remittances.
If your client doesn't need direct integration, but does want or need the ability to look up tax and jurisdiction data, Avalara Sales Tax gives them that option. It contains the rates for over 10,000 U.S. jurisdictions, as well as nearly 100 countries.
One significant area of exposure in the area of sales taxes is audits. For many practices, it's not a question of whether a client will face a sales tax audit, but when. And when they do, correct calculation and accurate taxability of products and services are not the only things the auditor will be looking at. They will also be examining any non-taxable exempt sales and/or services that your client recorded revenue for. In almost every taxing jurisdiction, the taxing authority requires that your client have documentation of why a particular customer is not being charged sales or use tax on an item or service that is normally subject to tax.
There are premade forms that many entities such as schools and other nonprofits use. If your client has customers with these certificates, they need the ability to record and provide easy access to copies of the exemption. Avalara CertCapture enables your client to automate the capture, storage and retrieval of exemption documentation. And if your clients' customers need help in creating the required documentation, CertExpress is a free certificate creation wizard.
Not all of Avalara's services have a cost. Avalara TaxRates are downloadable sales tax rate tables for every U.S. zip code and a free calculator that determines sales tax rates based on addresses and geolocation. This is useful for your clients that don't generate enough invoices or sales to justify the cost of a more sophisticated and integrated service.
Premier State Tax Library
Most of the vendors' products and services covered in this roundup are concerned with determining taxability of goods and services, calculating the required tax, and reporting and remitting the tax collected.
Rather than provide a product that performs those kinds of tasks or services, Bloomberg BNA's offer is knowledge. While the company does offer application software, primarily in the fixed asset area, its main products are its libraries of subject portfolios that offer data and analysis.
The Premier State Tax Library is one of these. The product is accurately named, as it isn't a single product, but an umbrella covering a wide offering of more directed subject portfolios. The Library is organized into four subareas - Expert Analysis, Practice Tools, Source Documents, and News and Commentary.
The main interface for most of your research is going to be the Sales & Use Tax Navigator, which is organized by state and ties together tax rules, expert analysis, and primary source materials. The Navigator includes tax rates, taxable base, taxation of services, bundled transactions, taxation of leases, and other subject areas.
CCH Sales Tax Solutions
CCH, a part of Wolters Kluwer
Wolters Kluwer's CCH division has products on both ends of the scale. That's true for their sales and use tax solutions as well as in other areas of accounting and law.
Some of these products are in-house. These are mostly legacy applications that have been available for a while. As CCH continues to develop new products, and enhance older ones, the direction is to offer these products as online services. This model seems to be working well for a wide variety of business applications, and other than having to worry about Internet access, it makes financial sense to both the customer and provider.
CCH's major on-premises legacy product is Sales Tax Office 3.8, and it provides a calculations and rules engine to high-end mid-market and enterprise ERP vendors, including Microsoft, Oracle and SAP.
Unlike many vendors that concentrate on serving just one market (usually the enterprise market), CCH also has solutions for both your SMB clients and your practice if you decide you want to be the service provider for your clients.
The product that's probably most appropriate for your SMB clients is Sales Tax SaaS CORE. As its name indicates, it's a hosted solution, and available 24/7. CORE provides the calculation engine, nexus mapping and taxability judgment, and recording and reporting functions. Currently, Sales Tax SaaS CORE is integrated with a number of accounting and ERP applications, including those from Microsoft and Sage, and CCH is working with NetSuite to integrate CORE with NetSuite's eCommerce system.
If your client already has a calculation and recording engine in place, CCH Sales Tax Returns Online and Sales Tax SaaS PLUS provide return preparation and remittance from bulk uploading of recorded transactions.
CCH is well-known as a provider of accountant-oriented solutions and practice management aides. Sales Tax SaaS PRO is a special version of the software for use by accounting practices that want to offer sales tax management and compliance services to their clients. In effect, it turns your practice into a sales tax service bureau and offers a potential new revenue stream.
If your client is purely a brick-and-mortar retailer, TaxCloud is not the solution for them. The vendor's applications target electronic commerce, and are tightly integrated with more than 50 payment and commerce partner systems. Services that TaxCloud offers to their (and your) clients include calculation of applicable tax rates, application of product-based exemptions, and detailed jurisdictional reporting.
TaxCloud can also manage your clients' exemption certificates, and automate the filing of returns and remittances in the 24 SSUTA states.
This filing in the SSUTA states is what supplies TaxCloud with its revenue, so that the services are provided at no cost to your clients. This makes TaxCloud a particularly good value for your smaller clients that operate in the e-commerce market and are located in one of the SSUTA states. If a client is not in one of the 24 SSUTA states, TaxCloud can still do the rate lookups and calculations, but will need to provide this information to the client, who must then prepare and file a return and remittance.
TaxCloud states that it is really easy to set up, and if you are interested, they have a 10-minute video that walks through the process. It might be a good investment of time to see how applicable and easy TaxCloud would be to implement in the future should you have a client that could benefit from the service.
Taxware Sales Tax Service
Over the years, Taxware has had several owners, including ADP. Most recently, it was acquired from ADP in 2012 and operates as a standalone company. The move from one vendor to another reflects the value that over 30 years in the business provides.
For the most part, Taxware's offerings are targeted toward larger companies in the high end of the SMB market and in the enterprise space. This is most evident in the pre-built integrations with accounting and ERP systems from SAP, Oracle, Oracle JD Edwards, Oracle Peoplesoft Enterprise, Microsoft Dynamics, Info, and Lawson. At the same time, Taxware also offers integration with QuickBooks, as do many of the other products in this roundup.
The four major products that Taxware offers are Taxware Enterprise, Sales and Use Tax System, New Sales Tax Solution, and Tax Content Solution.
Taxware Enterprise is the vendor's top-of-the-line offering, and is offered as either a SaaS solution or an in-house application. It provides a single calculation engine for sales tax, use tax, VAT, and other similar consumption taxes, and has constantly updated calculations for over 200 countries. Included in the application are an easy-to-use exemption certificate tracking capability and reporting tools to support Sarbanes-Oxley Section 404 compliance.
For entities that don't need a global tax compliance solution, Sales and Use Tax System offers many of the same capabilities, but is limited to U.S. taxing jurisdictions and tax categories. The Sales and Use Tax System is a popular enhancement or replacement for POS systems for both brick-and-mortar and Internet sales.
Taxware also offers the New Sales Tax System. This isn't a calculation product - it assumes that your client already has the capability of calculating and recording sales tax transactions. The New Sales Tax System is meant to let your client outsource the preparing and filing of returns.
Finally, Taxware's fourth product is its Tax Content Solution. This is similar to the Enterprise application, but without the calculation engine. As an addition to an already-existing POS system, the Tax Content Solution provides constantly updated rates and taxability rules.
ONESOURCE Indirect Tax
Like CCH, Thomson Reuters has products for your practice, and products for your clients. ONESOURCE Indirect Tax is an on-premises or cloud-based set of modules designed to integrate with the ERP systems that your larger or more complex clients are using.
The complete suite consists of modules that perform tax determination and calculation, tax research, compliance activities including return preparation and remittance, and management of exemption certificates. The rate and rules database covers sales tax, use tax, VAT, and goods and services tax for all U.S. and Canadian jurisdictions, as well as over 180 other countries. This database is automatically updated monthly.
The past year has been a busy one for the ONESOURCE product team. They recently released a new global integration framework. The "Global Next" integration software was built to allow ONESOURCE Indirect Tax software to work with SAP ERP to enable the SAP application to handle global indirect taxes.
Thomson Reuters has also started offering address verification software from Experian Data Quality. This will ensure address information accuracy when used in the Oracle E-Business Suite and SAP ERP system.
For those of your clients that require only accurate sales and use tax rates, this is available through the recently acquired Tax Data Systems, which is now part of the Thomson Reuters family.
As with several of the other vendors in this roundup, Thomson Reuters offers a variety of free informative services to help you understand changes in the indirect tax field as they are enacted, and maintain your expertise in the sales and use taxation area.
Vertex Indirect Tax O Series
While some of the vendors of enterprise-level software and services feel comfortable in claiming that their products are just as valid for smaller entities, Vertex makes no such claim. Rather than classifying a potential customer for their Indirect Tax O Series by size, Vertex's product line is targeted at need - companies that have sales, use, VAT and other similar tax responsibilities in multiple countries and with multiple currencies. That doesn't leave out using the Indirect O Series applications in just the U.S., as the application set and calculation engine has excellent capabilities for computing nexus and jurisdictional criteria in this country and applying and calculating the correct rate.
In addition to the U.S., the Indirect O Series can make the appropriate jurisdictional, transactional and computational calculations for countries located in the European Union, the Middle East, Asia and Africa. For your clients operating in Canada, the system can calculate GST, provincial sales tax, and harmonized sales tax.
The Indirect O Series consists of a number of applications that your client can use as a suite or individually. These components include Sales Tax, Consumer Use Tax, and Sales and Use Tax Outsourcing, where Vertex creates and maintains the transactional records, generates and files the required returns, and directs your remittances to the correct taxing agency. The Indirect O Series is available as a traditional in-house application or in the cloud as SaaS applications. Both of these versions feature Vertex Central, which lets your client access global activities from a central location and use the data to prepare reports, conduct rate and jurisdictional research, and provide audit support if needed at a foreign locale. Exempt transactions are permitted in many countries besides the U.S., and the Indirect O System has the capability of managing exemption certificates where they are allowable, alerting the client as to whether the certificate is incomplete or invalid, and noting that a particular certificate or set of certificates are due for renewal.
Unlike several of the vendors that we surveyed for this roundup, Vertex does not provide an end-user SDK or application programming interface for integrating the application into your clients' existing software. Rather, it has partnered with over 60 companies to provide integration with specific ERP and finance systems. Even if you feel that the Vertex O Series is overkill for most of your clients, you might want to spend some time perusing the large selection of white papers in the Resources Center of the vendor's Web site. You can bring yourself up to speed on issues and initiatives that you can use to advise your clients.
SALES TAX PLAYERS
A selection of vendors in the sales and use tax arena
Premier State Tax Library
CCH Sales Tax Solutions
CCH, a part of Wolters Kluwer
Taxware Sales Tax Service
ONESOURCE Indirect Tax
Vertex Indirect Tax O Series
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