By Tim Roden.
Managing sales tax – and the associated responsibility for sales tax compliance – has never been easy. As technology continues to rapidly evolve, SMBs are under increased pressure to stay on top of these demands without neglecting other key company priorities.
When employees are tasked with maintaining sales tax compliance but are neither trained tax professionals nor have sales tax as their primary job responsibility, both businesses and workers will be affected.
Sovos surveyed 250 individuals with sales tax management/administration responsibilities in their organization. Nearly 80 percent of respondents reported working at companies that earn less than $10 million or between $10 and $25 million in annual revenue. Respondents expressed concern and frustration with current processes, with some wondering if it might be time to look for another job.
However, using the right sales tax technology can help ease the compliance burden on employees in several key ways.
Effectively meet changing sales tax requirements
As of December 31, 2021, there are 22,688 political subdivisions (states, counties, cities) in the United States. Of these political subdivisions, sales tax currently exists in 12,472 of these locations. This includes 44 states (along with Washington and Puerto Rico), 2,215 counties, 7,883 cities, and 2,328 counties. That’s a lot to keep track of – especially if SMBs use manual workflows.
In addition, Sovos tracked 523 sales tax changes from July 2021 to April 2022. For July 2020 to June 2022, there were 640 sales tax changes. Regulations and tariffs can change quickly, and when coupled with greater oversight and enforcement, businesses selling in multiple jurisdictions are likely to have a more difficult experience.
Less than a third of respondents said their business was able to update sales tax in hours, which can be a long time in the sales tax world. Changing regulations and even sales tax holidays can put additional pressure on organizations to keep pace.
Losing a sale/customer because transactions cannot be properly processed and incorrectly processing a transaction at the wrong rates (and the potential consequences) were respondents’ top organizational fears when it comes to sales tax.
This can put companies in a difficult situation: Do you risk losing a sale because you can’t report the most current sales and use tax, or do you still process the sale even if you know the sales tax is wrong? Doing the latter can result in hefty fines or audits. Nearly 80% said generating an audit or facing a financial penalty was their biggest fear if there was an error in their sales tax filing. And 18% reported that losing their manager’s trust or getting fired was their number one concern.
Prioritize and streamline workflow
Our research found that 83% of respondents said that automating their organization’s tax management process would make them happier in their current role. The big layoff is very real, and the current job market could be an opportunity for employees to find work that allows them to at least turn their backs on their favorite duties.
Additionally, 62 percent of respondents said their organization has adopted new technology or systems in the past two to three years to combat the growing complexity of sales and use tax. Organizations may face a lack of training on new systems or a lack of effectiveness of new systems in managing sales and use tax complexities.
2018 South Dakota v. Wayfair, Inc. Supreme Court solution significantly expanded the organizations’ connection footprints. States are still struggling to properly implement the new regulations to maximize the income owed. Moreover, regulators want to close the tax gap and there is increased investment in digitization for this. Now more than ever, there are technological capabilities to expedite notices, audits, penalties and fines. Small and medium-sized businesses are not immune from this scrutiny, and businesses must ensure that their employees can rise to the challenge without being overwhelmed.
This is when cloud-based sales tax solutions can benefit. Real-time updates help ensure compliance, giving businesses the peace of mind that regulatory changes are always accounted for.
Reduce dependence on IT
Using the right sales tax technology can also help businesses rely less on their IT teams. Over half of those surveyed said they are seeing a strain on IT and other resources, with 13% reporting that sales tax obligations are leading to a stressful workplace and employee disengagement. In addition, 35% of respondents say that the increasing complexity of sales tax is distracting from core business priorities.
The majority of SMBs could benefit from a new approach to sales tax technology – roughly two-thirds of respondents said their current approach to sales tax management requires some level of IT assistance. Businesses will run more efficiently when all departments can focus on their core goals and not be too scattered.
But is it really that bad? Our survey also asked what employees would rather do than deal with sales tax management:
- 63% prefer to shop for groceries
- 51% prefer to do laundry
- 39% prefer to go to the dentist
- 33% prefer to sit in traffic
While running errands and chores aren’t likely to go away anytime soon, neither are sales tax compliance requirements. But there are ways to eliminate the latter. When internal teams can automate sales tax calculations, effectively track sales tax rates and rules, and properly manage exemption certificates, it will reduce internal pressures and improve overall business efficiency. Working with the right partner can shift the burden of compliance from your employees, allowing them to refocus on your core business priorities.
Tim Roden is Solutions Director, Sales and Use Tax at Sovos.