By Tim Roden.
Managing sales tax – and the responsibility associated with sales tax compliance – has never been easy. With technology continuing to rapidly evolve, small and medium-sized businesses are feeling increased pressure to stay on top of these demands without neglecting other top company priorities.
When employees are tasked with maintaining sales tax compliance but are neither trained tax professionals nor have sales tax as a core job responsibility, a tax will be levied on both businesses and employees.
Sovos surveyed 250 individuals with sales tax management/administration responsibilities in their organization. Nearly 80% of respondents reported that they work 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 questioning whether it is 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.
Efficiently meet evolving sales tax requirements
As of December 31, 2021, there were 22,688 political subdivisions (states, counties, cities) in the United States. Of these political subdivisions, sales tax currently exists in 12,472 of those locations. This includes 44 states (along with Washington DC and Puerto Rico), 2,215 counties, 7,883 cities and 2,328 districts. That’s a lot to keep track of—especially if SMBs are using manual workflows.
Additionally, Sovos tracked 523 sales tax changes from July 2021 to April 2022. From July 2020 to June 2022, there were 640 sales tax changes. Rules and fees can change quickly, and when coupled with greater oversight and enforcement, businesses selling across 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 per hour, 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 processed correctly and incorrectly processing a transaction with the wrong fees (and potential consequences) were respondents’ top organizational fears when it comes to sales tax.
This can put companies in a tricky situation: Do you risk losing a sale because you can’t calculate the most current sales and use tax, or do you process the sale anyway, even if you know the sales tax is wrong? Doing the latter can lead to hefty fines or audits. Almost 80% said getting audited or facing a financial penalty was their biggest fear if there is an error on their sales tax return. And 18% reported that losing their manager’s trust or being fired was their number one concern.
Prioritize and streamline workflow
Our survey found that 83% of respondents said that automating their organization’s tax management process would make them happier in their current role. The Great Resignation is very real, and the current job market may be an opportunity for employees to find work that allows them to leave behind their least favorite responsibilities.
Additionally, 62% of respondents stated that their organization adopted new technology or systems in the past two to three years to combat the increasing complexity of sales and use taxes. Organizations may face a lack of training on the new systems or a lack of effectiveness of the new systems in managing sales and use tax complexities.
2018 South Dakota v. Wayfair, Inc. Supreme Court the decision greatly expanded the footprint of the organizations’ connections. States are still trying to properly comply with the new regulations to maximize the revenue they are owed. Moreover, regulators want to close the tax gap and there is increasing investment in digitization to do so. Now more than ever there are technological capabilities to expedite notifications, audits, penalties and fines. SMBs are not immune from this scrutiny, and businesses must ensure their employees can rise to the challenge without becoming overwhelmed.
This is where cloud-based sales tax solutions can come in handy. Real-time updates help ensure compliance, giving businesses the peace of mind that changes in regulations are always taken into account.
Reduce IT dependency
Using the right sales tax technology can also help businesses be less dependent on their IT teams. Over half of respondents said they are seeing a strain on IT and other resources, with 13% reporting that sales tax obligations lead to a stressful workplace and employee turnover. Additionally, 35% of respondents said that increasing sales tax complexity distracts from top business priorities.
Most SMBs could benefit from a new approach to sales tax technology – roughly two-thirds of respondents said their current sales tax management approach requires some level of IT assistance . Businesses will run more efficiently when all departments can focus on their core goals and not become too scattered.
But is it really that bad? Our survey also asked what employees would rather do than handle sales tax management:
- 63% prefer grocery shopping
- 51% prefer to do laundry
- 39% prefer to go to the dentist
- 33% prefer to sit in traffic
While running errands and doing chores around the house likely won’t go away anytime soon, neither will the demands of sales tax compliance. But there are ways to eliminate the latter. When internal teams can automate sales tax calculations, efficiently 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 regulatory compliance from your employees, allowing them to refocus on your core business priorities.
Tim Roden is the solutions director, sales and use tax, at Sovos.