Taxes are, unfortunately, a fact of life. There's taxes for this and taxes on that. Your clients who derive revenue from sales probably have it worse than most.
Sales and use taxes can be exceptionally frustrating to document and prepare. With multiple taxing jurisdictions, rates and applicability, just keeping up with what has been collected, at what rate, and who it gets reported and paid to can easily become a full-time job.
Nexus, a legal term for a taxing authority's ability to collect taxes from a company, muddies the waters even more. Having significant amounts of sales in different taxing jurisdictions is actually pretty common in businesses that do catalog or Internet-based sales, as well as multi-state companies with taxable sales. And if your client is subject to sales taxes, use taxes and value-added taxes, keeping track of what taxes get reported and where they get reported becomes a significant challenge.
On top of all this is the ever-present specter of a sales tax audit. As any accountant that's been through one knows, that's not much fun for either you or your client, especially if accurate records of liabilities, filings and remittances haven't been kept.
But if your client has been keeping accurate records, and can demonstrate compliance with liabilities and remittances, a sales tax audit can often be reduced from a nightmare to an inconvenience.
Sales tax software is not a single-function application, but falls into one of two major categories. The more obvious one of these are applications that determine whether a sale is subject to sales tax, compute the rate and the amount, accumulate the tax collected, and prepare the required forms for whatever taxing authorities need to receive them. In many cases, this task is provided by an outside vendor, which either integrates to work directly with your client's accounting system, or analyzes the revenue stream for accuracy after the fact.
A second category of sales tax software is similar to the tax table service many payroll users have. These sales tax services monitor changing rates and item tax liabilities, and provide the updated sales tax information on a regular basis. This allows your client to make sure that they have the latest data on what tax authorities they need to report to, what the taxability of different kinds of sales and merchandise are, and what the current tax rates are for different taxing jurisdictions.
As with many applications, there is no "one-size-fits-all" when it comes to sales tax software. Exactly what the best solution is for a particular client depends on that client's specific needs. Another caveat is price. Many of the sales and use tax applications are targeted to large enterprise clients running high-end accounting systems like SAP.
An additional thing to consider is whether your client's accounting system provides sales and use tax capability. Many do, especially if your client is using a point-of-sale front end. In this case, you and the client need to determine whether the embedded capability is sufficient to do a good job. You and your client don't want to find out that it didn't in the middle of an audit.
Pricing on sales and use tax software often depends on the application itself. Many of the vendors listed here offer a server, rather than in-house software. In this case, pricing may depend on several things, such as the level of services provided and the number of sales and use tax transactions per period. If it appears that any of these vendors could serve your client's needs, you'll have to contact their sales department for a quote.
To give you and your clients a leg up on researching which sales and use tax software or service might best meet their needs, we looked at eight vendors who offer solutions at different levels.
ADP Sales and Use Tax System for Midsized Businesses
(800) 225-5237 ext. 230
Many accounting practices have clients who use ADP to prepare their payrolls - it's one of the oldest and best-known of the payroll service bureaus. But payroll isn't the only service that ADP offers. Payroll is frequently left to a service bureau like ADP because of its complexity and ever-changing laws and rates. Sales and use taxes are very similar in this regard, and as with payroll, ADP can handle your client's sales tax process, from calculation to reporting and remittance to the various taxing authorities and jurisdictions that your client is liable to.
With payroll, ADP is structured to handle clients large and small. It's not uncommon for a business with only four or five employees to use ADP for payroll, simply to eliminate the hassle of keeping up with tax rate changes, reporting requirements, and sending out W-2s and 1099s at the end of the year.
Unfortunately, while ADP offers smaller businesses payroll services, it targets larger businesses for its Sales and Use Tax System. At the high end, ADP has its Taxware Enterprise, but that's really for large enterprise and even multinational companies. The Sales and Use Tax System for Midsized Businesses is focused on what ADP considers midsized, a company with between 50-500 employees. That's the range at which ADP estimates that the company will generate enough sales to make outsourcing the sales and use tax process economically and work-load feasible.
Of course, if you have a smaller company with large numbers of transactions in more than a few taxing jurisdictions, especially if nexus applies, ADP's Sales and Use Tax System may be entirely appropriate, as it's the complexity of the tax calculation, collection and reporting process that is the real benchmark of where it becomes more practical to go outside the client for this task.
If ADP's Sales and Use Tax System for Midsized Businesses does fit the bill, your client will find it easy to use, accurate, and up to date as far as jurisdictional liability and current rates. But that's pretty much what you would expect from ADP, and why so many companies use them for their outsourced processing needs.
With Internet sales assuming more and more importance these days, ADP's midsized solution may not be appropriate if your client has a significant amount of taxable and reportable sales/use tax liability outside of the U.S. and Canada, as these are the only countries covered by the service. If this is the case, ADP's Taxware Enterprise or another vendor's offering may be the way to go.
Vendors in the sales and use tax market tend to focus on one particular area - providing current rate and applicability tables for lookup or integration with a currently installed accounting system, or in-house or service bureau calculation and reporting. Avalara doesn't try to be all things to all people, but it does a good job of covering a wide field with comprehensive product offerings, many of which are applicable to entry-level accounting systems like QuickBooks or Peachtree, as well as enterprise systems like SAP and Oracle. Avalara has integration with over 90 products, and a software development kit to enable integration with an application that it doesn't already support.
In addition to sales tax filing services, and exemption certificate management (a real time- and effort-saver for your nonprofit clients), Avalara has sales tax automation software as a cloud-based offering, AvaTax OnDemand, or an in-house application, AvaTax OnSite. Both of these offer comprehensive sales and use tax rate and jurisdictional table lookup.
AvaFile is a Web-based service that tracks your client's sales and use tax liabilities and prepares and files the necessary returns, with TrustFile available for larger businesses.
Another offering from Avalara is AvaRates, which provides rate tables and current updates to your clients simply by entering a city or area code. These databases can be integrated with other applications that your client may be using, and you and your client can get a good idea of what is available by accessing the free rate database, which, with rates for over 12,500 taxing jurisdictions, is a much smaller database than the full paid version.
BNA Sales Tax & Use Tax Rates and Forms
(800) 424-2938 opt. 3
When it comes to recording and filing sales and use taxes, not every client will have the same needs. Clients with somewhat simpler requirements, perhaps collecting taxes in only a few taxing jurisdictions, can often rely on their accounting software, especially if they are using POS software, to calculate the requisite sales tax if the sale is taxable and if you know what the correct rate is for the particular taxing jurisdiction that the sale must be reported to.
Keeping abreast of what the correct rate is at the moment, and any changes in taxability of particular items, can be a chore, whether you perform it or your client does. These rates, and the items that they need to be applied to, change frequently, and checking the Internet frequently to track these changes is both time-consuming and inefficient. Explaining to a sales tax auditor that you or your client forgot to check the rates and applicability because you were busy, or forgot, is not going to get either of you very far, and indeed is likely to encourage the auditor to take a closer look than originally intended.
BNA's Sales and Use Tax Rates service addresses this problem by providing an online or CD-based lookup to determine applicable rates and any special tax treatments that taxing jurisdictions require for over 58,000 jurisdictions in the U.S.
The BNA service is available in two formats. Your client can look up a rate online by entering a state, city or ZIP code. Perhaps an easier way, especially if your client has a need for current information for more than just a few rate queries, is for them to use the BNA Sales & Use Tax Rates Exporter. This lets them schedule delivery in a format that can be imported into most applications that use rate tables, and they can specify that rates be e-mailed to them weekly, monthly, quarterly or annually. The CD version of the rate tables is mailed to subscribers once a month.
BNA can also supply the required filing forms from a library of almost 3,400 returns, exemption certificates, business registrations and many other useful business forms.
CCH CorpSystem Sales Tax Solutions
CCH, a Wolters Kluwer business
While CCH is well known to accountants for its practice-oriented ProSystem fx Suite, it is also very active in providing enterprise-level corporate solutions. These offerings do not encompass accounting software, but do provide ancillary features and enhancements to an enterprise-level accounting system that your client may be using.
Of interest to this review is CCH's CorpSystem Sales Tax Solutions. With six offerings that comprise both research and compliance, CCH has your client's sales tax needs well in hand. Of the six product lines, compliance issues are most directly addressed by the CorpSystem Sales Tax Returns Online. This directly creates required sales and use tax returns from data contained in your client's ERP system, and allows your client to e-file them where applicable or download detailed filing reports so that your client's accounts payable department can cut the required checks.
The other products in the lineup address tax applicability, jurisdictional issues and current rates. These include the CorpSystem Sales Tax Rates and Taxability Database, updated monthly and offered in subsets so that a client doesn't pay for more than they need. CorpSystem ZIPSales Lookup makes it easy to find a specific rate and taxability rules by entering the ZIP code of a location.
For ERP systems that can accept sales tax tables, CorpSystems Sales Tax Load Utility provides a means to update rates into Microsoft Dynamics, and Sage MAS and Accpac. Finally, CorpSystem Sales Tax Online and Sales Tax Office offer up-to-the-minute tax rates, tax calculation and return preparation.
As with many of the applications and services included in this roundup, the CorpSystem applications and offerings aren't targeted at small or even most midsized businesses. But for those clients of yours that have more robust needs, CorpSystem is very much worth looking at.
Sabrix Managed Tax Service
Sabrix (Thomson Reuters)
Sabrix is a Thomson Reuters company, and is part of the onesource Indirect Tax family. On the high end, onesource has recently introduced Indirect Tax, which is targeted at large enterprise corporations and those with global taxing calculations and reporting requirements. Sabrix also offers the Managed Tax Service for small to midsized companies.
MTS is a completely outsourced sales and use tax service that handles pretty much all aspects of the process. The service provides validation of rates and taxability. It then performs the calculations, prepares the requisite forms for the tax jurisdictions in which the client has a liability, and reviews the forms and calculations before filing or, where applicable, e-filing the return. MTS even handles the remittance (assuming your client has set up an account Sabrix can access for this).
Sabrix can even handle the preparation and representation for a sales tax audit for your client, though for many practices, this is likely to be one area where you will probably want to take a more direct role.
To some extent, this approach is analogous to a modular accounting system, where you (and your client) can pick and choose what parts of the sales tax research, calculation, preparation, and even audit support you and they want Sabrix to be responsible for. With this flexibility, Sabrix MTS makes it easy for you to help your client configure the services so they get the most for their budget.
The SpeedTax product line consists of three major offerings - SpeedTax Manager Core, SpeedTax Manager Plus and SpeedTax Manager Pro. The Core product is SpeedTax's calculation engine. Core provides the tax rate and address verifications, taxability of sales, nexus management, exemption handling, and jurisdiction determination. The Core database includes more than 14,000 taxing jurisdictions and is meant to be used with a client's accounting/ERP system, including those that provide POS and e-commerce capabilities.
A wide number of these integrations are offered, and include Microsoft Dynamics, SAP, NetSuite, Sage MAS and Accpac, and others, with a software development kit available if there is not already existing integration with your client's system.
SpeedTax Core can also be used by your clients who don't have enterprise-level systems. A version of SpeedTax can be used with different versions of QuickBooks, including QB Enterprise.
Actual return preparation and filing is handled by a second SpeedTax product, SpeedTax Manager Plus. This can be used on a stand-alone basis by uploading batches of sales transactions, or, as with Core, integrated into the client's accounting system.
On the practitioner's side, SpeedTax has two products that can help you manage your clients. SpeedTax Manager Pro is a client practice management application that allows your staff to look at and edit client information and settings. It also lets you and your staff follow the process through return preparation and filing.
Finally, SpeedTax Audit Pro is an application that lets you analyze transactions and identify potential overpayments of sales and use taxes by your clients. You can also use Audit Pro to review prior returns for possible hidden errors when your client is facing a sales tax audit.
Thomson Reuters onesource Indirect Tax
Thomson Reuters' high-end onesource Sales and Use Tax products recently were renamed. Sabrix, which is also part of the Thomson Reuters family, also falls under the onesource umbrella, but the Managed Tax Services that Sabrix offers are targeted at somewhat smaller companies than the ones sold directly under the onesource Indirect Tax name.
For larger enterprises and those that have global needs for sales, use and VAT tax verification, calculation, recording, and other compliance issues, onesource has two sets of solutions- the Determination, Calculation and Recording solutions, and the Compliance and Remittance solutions.
The Determination, Calculation and Recording solution is the actual onesource tax engine, with tax rate tables as well as tax rules and algorithms for over 13,000 jurisdictions. onesource is available to integrate with a large number of enterprise ERP systems, including SAP and Oracle, and a software development kit is available for integrating the tax engine with applications that don't already have an integrated version available.
The second set of solutions is the vendor's Compliance and Remittance solutions. This set of applications takes the actual computed sales and use data, and slots it into the required returns so that the taxing jurisdictions receive the required forms and remittances in a timely manner.
onesource Indirect Tax is available on CD for in-house installation on your client's servers, or as a new Web-based version. Both versions provide access to the onesource Tax Calendar, allowing your client to track return and payment deadlines.
Vertex Indirect Tax O Series
Another vendor with sales and use tax solutions for your larger clients is Vertex. As with many of the vendors detailed here, the Vertex O Series is targeted at large enterprise business, often with global VAT tax concerns. In North America, the Vertex O Series provides tax calculation for U.S. state and local sales and use tax, VAT taxes in Mexico, and Canadian GST, PST and Harmonized Sales Tax. There are also tables and calculation for Central and South America, the European Union, the Middle East, Asia and Africa.
Vertex O Series permits your client to create custom rules if required, and provides embedded exemption certificate management. Jurisdictional accuracy is enhanced using the proprietary TaxGIS, which automatically determines all the possible jurisdictions for each address in a transaction and provides ZIP+4 precision as an option.
Extensive reporting options are available, which are useful in audit preparation, and the Data Extract utility allows all information stored in the reporting database to be exported in a variety of formats, including Excel. This feature is very helpful in performing data mining.
The Vertex O Series does not by itself create required returns. This requires a returns system such as Vertex's own Vertex Sales and Use Tax Returns. This is a Windows PC-based system to produce signature-ready returns. An export feature allows the Vertex O series to be used with return preparation software from other vendors.
With the ability to service companies with global requirements, the Vertex O Series Indirect Tax system is server-based, with a Web interface so it can be accessed through a standard browser and used from anywhere by an authorized user.
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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