While most people understand that taxes are a necessary part of life, and that they are used to fund services, no one likes paying them. that's understandable -- between all of the business and personal taxes, the tax load on most taxpayers and business entities is substantial.
But the person or business paying the sales or use tax isn't the only unhappy party in the transaction. The business that is responsible for collecting and remitting those taxes is generally just, if not more, unhappy. For them, the entire sales/use tax issue just means additional work -- and possibly a visit from a sales tax auditor.
For some of your clients, the sales tax problem is a moderately easy one. If your client has sales in just a few locations, many accounting and point-of-sale systems will automatically calculate the rate based on zip code and produce reports that help with the remittance. For many of these applications, when tax rates change, you will either have to edit the tables yourself, or subscribe to a table update service similar to the ones provided for payroll taxes.
But payroll taxes can be relatively simple or mind-numbingly complex, and so can sales and use taxes. Even in those situations where your client has only one location, and doesn't perform sales or services outside that area, there can be many layers of taxes, and each one can have rates that change unpredictably. State, county and municipal sales taxes all have to be recorded and reported individually. Then, of course, there are entities, including most nonprofits and government agencies, that are exempt from being charged sales tax. These require official documentation, usually in the form of an exemption certificate.
And if that isn't enough to make your client consider trading their business for one that doesn't have sales tax responsibility, how about determining which goods and/or services are subject to sales tax? But wait ... we're not finished yet. In an increasing effort to keep sales local, many towns, cities and counties occasionally offer sales tax amnesties for a day or longer. Keeping track of which areas offer these, for how long, and to what extent, adds another layer of complexity to record-keeping and remittance.
I OWE SALES TAX TO WHERE?
Finally, there's the dark side of sales tax (as if there's actually a light side) -- nexus. Nexus is simple in concept, and much more difficult in application and compliance.
Nexus is a legal term for a taxing authority's ability to collect taxes outside of its immediate geographic jurisdiction. In the sales tax area, nexus is frequently applied when a business does a significant portion of its sales-taxable business in one or more physical locations. If all these locations are in the same geographic area, nexus generally doesn't come into play. But with your clients' businesses (or even your own practice that produces locally taxable services) branching out far and wide, nexus is often a concern, and is a considerable source of income for taxing authorities.
It's not all that difficult to explain to a client that they might have exposure to nexus. Just point to a paper or TV ad that states that residents of certain states must include sales tax. But determining nexus liability isn't easy, and like other sales taxes, the laws change frequently. But your client is responsible for keeping up with this information, and complying with them if it turns out that they have nexus exposure.
With this complex mix of rules and rates, having accurate records is a must for your clients. Sales tax audits are frequent, depending on the locality and taxing authority. And if your clients have been the least bit negligent in this area, it can cost them big time in fines, penalties and recalculated back-tax liability.
GETTING THE RIGHT FIT
Software can certainly help your client in this area, but there are different applications that address the different sales tax concerns pointed out above. A very simple business in a single overall taxing jurisdiction with multiple rates and rules might need a different solution than an enterprise client subject to multiple tax authorities and nexus liability.
To help you point your client in the right direction, we surveyed eight companies that provide services relevant to sales tax compliance. It's likely that no one company is going to provide a complete solution for every one of your clients, but having a good idea of where to look for a company that addresses the compliance issues that a particular client may have gives you a leg up in pointing your client in the right direction.
ADP Sales and Use Tax Solutions
ADP
Many of your clients already use ADP to outsource all or part of the payroll processing. Conceptually, sales and use taxes are similar to payroll taxes. Both have numerous fields of calculation, varying rates, and rates that seldom remain fixed over the long term. So it's little wonder that ADP also offers a sales, use and value-added tax service in its portfolio.
This service is available on a number of levels and in several different offerings within those levels. ADP delineates its editions for use by midsized businesses and enterprise businesses, and offers complete systems (such as those offered by its payroll editions, or a tax engine that adds sophisticated tax calculation and compliance capabilities to an existing accounting or retail system and can be in-house or host-based).
ADP segregates business size, at least in some of its marketing materials, by the number of employees, which is a relatively common method. Midsized businesses are defined under this criteria as having between 50 and 999 employees, with enterprise companies having a thousand or more.
Don't let this be the criteria that you use for considering ADP for your clients. More important than the number of employees is the complexity of the sales tax situation that the client has. It's quite conceivable, especially given how popular Internet shopping has become, that a much smaller client of yours would benefit from a high-power solution.
AvaTax
Avalara
Some of the vendors in this roundup have very targeted audiences and products. Avalara has a selection of modules that make up AvaTax that target many of the compliance concerns and are appropriate in a wide variety of your clients, from SMBs to enterprise-level businesses.
These products, which can be purchased or subscribed to separately, include AvaTax Calc, AvaTax Certs, AvaTax Returns, and AvaTax API Developers' Tools for custom integration with applications not already supported by Avalara. The names pretty much describe the function each addresses. Calc is the table-lookup and calculation engine, Returns manages filing and remittance, and Certs allows your client to maintain a database of exemption certificates. These products tie directly into more than 150 accounting, ERP and e-commerce systems. TrustFile provides secure e-filing and e-payments. With more states insisting that sales and use taxes be filed electronically, TrustFile may be a valuable adjunct for your clients.
While the above products are the mainstay of Avalara's offerings, they aren't the only ones. AvaRates has been upgraded to employ a proprietary geolocation technology to provide even more precise rate and applicability determination. Also new this year are mobile versions of the AvaCalc product for the iPhone, iPad and Android phones and tablets.
Bloomberg BNA Sales & Use Tax Portfolios
Bloomberg BNA
One of the most pressing concerns is keeping up with the changes in sales and use tax regulation, rates and applicability. Some companies have huge departments to handle just these aspects of the sales tax process. Others have less capability -- and look to your practice to help them maintain compliance.
The Bloomberg BNA Sales Tax & Use Tax Rate Finder offers rates for more than 58,000 jurisdictions. The product can be configured to automatically deliver the rates you or your client need, when they're needed. This service also provides on-screen cues to let you know when unique tax circumstances exist.
Other Bloomberg BNA products address sales and use tax research. Both the Sales & Use Tax Chart Builder and the Sales & Use Tax Navigator fall into this category, providing different levels and approaches to researching issues that may affect your client. The Sales & Use Tax Monitor extends this capability, providing your practice with daily news coverage of all sales tax developments.
CCH SpeedTax
CCH, a Wolters Kluwer business
As a cloud-based product, SpeedTax is very appropriate for the small and midsized business market. There's no layout for capital equipment, and software and tax rate updates are handled by SpeedTax, not your client. Transaction-based pricing also makes it an attractive option for your smaller clients.
SpeedTax has a number of solutions available. SpeedTax Core is a fully automated calculation service that integrates with existing financial or e-commerce systems that your client already has in place. If your client needs a more robust sales tax system, SpeedTax Plus extends Core by providing automated return preparation, filing and remittance functions. Finally, if your practice includes providing sales tax services for your clients, SpeedTax Pro provides the ability to automate and manage the sales tax process.
SpeedTax was acquired in 2011 by CCH, and now uses CCH's tax rate tables, which are among the most accurate available. CCH has also expanded the number of accounting and ERP systems that SpeedTax integrates with.
TaxCloud
FedTax
With one exception, the companies included in this roundup derive their revenue from the client. That exception is FedTax's TaxCloud. FedTax is paid by the states that have adopted the Streamlined Sales and Use Tax Agreement. Your client pays nothing to use the Web-based tax lookup and calculation service, which is basically targeted to businesses that operate on an e-commerce platform.
The features available to your client are actually based on whether the state in which your client reports is a participating member in SSUTA. If it is, the lookup and calculation engine can be tied to an e-commerce system through a simple application programming interface. In the states that are not members, TaxCloud prepares reports so that your client can file accurate returns. If the state your client files in is a member, TaxCloud can file the return directly. TaxCloud also manages exemption certificates, and there is no fee for this service either.
This year, TaxCloud has been integrated into 10 leading e-commerce and shopping cart systems. But it is not suitable for every one of your clients. It's really intended for use with companies that are e-commerce-based. With more and more of these springing up every day, it might provide just the right solution for certain of your clients.
CertCapture
Tax Technology Services LLC
Keeping track of exemption certificates is a necessary part of any sales and use tax workflow. Your client not only needs to know whether a purchaser holds exemption status, but where that exemption status extends to, and, if there is an expiration or renewal date, whether the certificate on file is still valid.
CertCapture focuses on just this particular function. Offered as a Software-as-a-Service application, it puts your clients' paper certificates into an online database that is organized so that any particular certificate can be easily accessed for verification.
When a client sets up an account, they provide copies of all the current exemption certificates that they have. Tax Technologies creates the initial database with these certificates, and as new certificates are received, CertCapture checks to see whether the certificate is valid and, if so, the certificate is captured and your client's database is updated. Tax Technologies maintains a library of the specific types of exemption certificates that each state allows, and this information is easily accessed through the vendor's Web site.
Tax Technologies offers CertCapture in four editions, depending on how many certificates need to be maintained, with additional benefits and reports above the less expensive and comprehensive level. But at least one of the four service levels will likely be appropriate for some of your clients.
Thomson Reuters ONESOURCE Indirect Tax
The Tax & Accounting business of Thomson Reuters
It's well-known that you don't bring a knife to a gunfight. Most of the products in this roundup are tailored to larger midsized businesses, or enterprise companies. ONESOURCE Indirect Tax is pretty much an enterprise product, and is, in fact, used in some of the largest multinational companies in the world. Your client doesn't have to be a multi-billion-dollar multinational to use ONESOURCE Indirect Tax, but if they are, they might already be using it.
ONESOURCE Indirect Tax is a SaaS-based application, which makes it easy to implement in multiple locations, though it's usually integrated with a high-end ERP system such as Oracle or SAP. Depending on the level of service that's chosen, the app can provide accurate taxing information for both the U.S. and Canada. Related products are targeted at the global market, providing tax rules, rates and calculations for over 175 countries.
Vertex Indirect Tax O Series
Vertex Inc.
Many solutions aimed at aiding in the process of calculating and compliance are targeted to the large midsized and enterprise entities. That's not solely because this size company is better able to afford it, but because they are the most likely to have complex taxing situations that require more powerful and comprehensive solutions.
Vertex Indirect Tax O Series is available as both a SaaS service or an in-house system, and integrates with high-end enterprise ERP software generally used when a corporate entity has multinational locations and is subject to a variety of sales, use and VAT taxes. Also covered are Canadian GST, PST, and harmonized sales tax calculations. The SaaS version calculates only for jurisdictions in North America, while the in-house version has global capabilities including the European Union, the Middle East, Asia and Africa.
It also provides the facility to perform exemption certificate management, but it's basically a rate lookup and calculation engine. The actual returns and remittances will need to be done by another application, some of which may be included as part of the ERP system, or by the optional Vertex Sales and Use Returns application, which can produce signature-ready forms to file.
