Keeping the Tax Auditor at Bay and Saving Time and Money in the Process

The regulatory environment surrounding sales and use tax is much more complex than most people realize…at least until you consider that there are over 13,000 taxing authorities in the USA, and that they made over 1400 rate changes in 2007.

Jurisdictional boundaries are constantly changing, too.  Incorporated municipalities regularly annex adjacent tracts of land, regional school districts often add or drop students from neighboring municipalities and so forth.  And while a jurisdiction’s sales tax rate may be quoted as 6 percent, the price point at which the next penny of tax is collected can vary from the first dollar to the second and even beyond.

How a product is used can also affect its taxability and multiple layers of taxing authorities create additional variables.  The typical fortune 500 corporation will offer over 1000 unique products and services, and will file returns each month with more than 74 different tax jurisdictions.  Even if everything you sell is for resale, you still need to validate sales tax exemption certificates.  In order to get it right and to then process all the filings requires significant dedicated resources.

Dealing with government auditors is another drain on resources.  With state and local jurisdictions strapped for cash, government revenue departments are increasingly turning to audits to boost cash flow.  The dollars involved are huge.  Thirty-five states rely on sales tax for over 25 percent of revenues.  The states also claim that e-commerce reduced sales taxes by a whopping $21.5 billion last year, and they are finding innovative ways to get their piece of that pie.  For example, New York State has enacted the so called ‘Amazon Tax,’ which attributes nexus to online stores that merely get customer referrals from other websites based in New York.

As a result, businesses are turning to Tax Compliance Automation (TCA) solutions to address the complexity of their sales and use tax environments. TCA provides a set of technologies that ensure the accurate calculation and timely reporting of sales and use tax.  Central to TCA solutions is a tax engine that addresses buyer and seller types, product taxability, order amount, tax jurisdiction identification and tax rates.  The technology is supported by managed services that provide continuous rate updates and ‘geo-coding’ to correctly identify buyer and seller nexus.  Together, software supported by managed services, enterprises are finding TCA solutions dramatically increase accuracy while reducing overhead.