Lessons on Tax Compliance from Top Performing Companies
Was tax compliance ever simple? It doesn’t feel like it when you’re stuck in the middle of 12,000 jurisdictions, constantly changing rates, and varying taxability rules. Many businesses today still calculate and resolve tax compliance manually, despite this process being inefficient, time-consuming, cumbersome and prone to error. Failing to comply can put your business at high risk for audit, which can be an expensive lesson. How expensive? The average cost of an audit ranges from $34,000 to $60,000 according to Aberdeen Group. Wakefield Research puts that cost closer to $100,000. Whatever the cost, the bottom line is: You can’t afford to be complacent about compliance.
If your accountant came to you tomorrow and asked for reports on the sales and use tax you collected in the last 6 months could you easily respond with the correct information? What about exemption certificates? Now picture an auditor who is questioning the figures on your sales tax returns for the prior three years. Could you quickly show him a process that allows for clear traceability?
For businesses with complex tax obligations, nexus in multiple jurisdictions, selling across multiple product lines, and companies growing and expanding into new locations, managing rate tables can become a logistical headache. There are thousands of rate, rule and boundary changes every year. In July 2014, there were 2,500 rate changes alone. For some companies, keeping rates and product taxability up-to-date within your ERP system can be a full time job. Collecting and maintaining exemption certificates for non-taxable sales can become cost-prohibitive and labor intensive. Add to that a return process that can take up to two weeks of staff time per month for most companies and you can see why manually managing your tax burden can quickly become inefficient.
If you are relying solely on disparate tax compliance processes, you may be unintentionally putting an audit target on your back. The best option is to be prepared long before the auditor comes knocking.
Top performing companies have realized a few key steps that can help alleviate the expense and challenges of a manual system:
- Take a look at your current process and develop a consistent, defined workflow.
- Find ways to increase sales tax calculation accuracy, while reducing paper waste, copies and hard copy retention.
- Look into implementing an automated system that integrates with your financial application. Smart companies are realizing this step can help shift the focus and time spent on their current sales tax process to revenue generating activities.
Automation can help alleviate the burden on your staff, reduce audit risk and increase customer satisfaction (employees too!). Avalara AvaTax integrates with your existing ERP system, making it an easy way to relieve the stress of tax compliance. Running more than just your ERP system (like an online store, point of sale, etc…)? Avalara also integrates with hundreds of popular e-commerce and POS systems to help make sales tax less taxing.
Learn more about the top things you can do to reduce audit risk and stay compliance by reading the Top 10 Sales & Use Tax Tips.