Turn Your ERP Into A Sales Tax Survival Tool
As your business grows, your sales tax requirements will likely grow with you. Your choice? Sink time and energy into sales tax management–which doesn’t make you money–or carry the risk that comes with being out of compliance. Or is there a better way?
CASE STUDY: Joe’s Bike Shop in New York, NY.
Joe opens a bike shop, and at first it’s just brick and mortar, but business is great. Members of the local community are lining up to buy bikes, apparel, whatever Joe is selling. From a sales tax perspective right now, Joe has worry about at least three fundamental things:
- What’s the rate where he is?
He has to charge these people certain sales tax rate on items. Number two, where and how much does he file to the local taxing authority and to the state taxing authority? And number three, product taxability. That is, how are different products taxed in his area? Are some of them taxed at different rates or exempt? So, he has to keep track of those three things at this point.
- Does he have tax exempt sales?
Fast forward a little bit, and Joe gets a call from a large client. Now, it turns out that this client is tax-exempt. So, Joe has to make a decision. Does he turn this client away and say, “Oh no, we don’t do tax-exempt sales,” or does he invest in managing exemption certificates? And if he’s managing exemption certificates, does he try and dump a lot of time and resources into a sales tax process now to get things exactly right, as much as he’s able, or does he not worry too much about getting it right and carry some risk because if he ever got audited, there may be some problems.
- Does he owe if he sells online?
Joe’s selling locally, he’s got tax-exempt customers and he really decides to step it up a level. So, what does he do? Sell online of course. Okay, now Joe’s selling online and effectively he’s opened up to markets all across the U.S. So, as you can imagine, his sales tax requirements are going to increase dramatically because in some of these states where Joe is doing business, he might have to collect sales tax either because he goes to trade shows there or he has inventory there, or for a whole host of reasons.
So, what does that mean? Well, now he’s got to worry about rates in different states. That bike is going to be taxed differently in New York than in California, than in Florida, etc. Same thing with filing. In multiple states and multiple local taxing authorities, he has to worry about filing schedules, when to file with whom, and how much. He’s looking at different rules for product taxability between different states and some seasonal issues like sales tax holidays. It might not impact Joe, but if you sell back-to-school supplies it could impact you if you’re selling into a state with a back-to-school sales tax holiday, and on down the list.
Tax exempt customers. He has to handle those in each state. What’s more, rates and rules can change over time and he has to track that everywhere he has to collect sales tax. So again, Joe has a choice. Does he invest more time, effort, and energy into this process to try and track these sales tax requirements and stay compliant, or does he not worry too much about it and carry a bit more risk in the event of an audit?
So what happens to Joe?
Joe decides to take his business global and begin selling to certain key countries overseas. Bigger markets, more profit, business is still going really well. But what happens? The sales tax requirements increase again. Now he’s dealing with different systems of indirect tax, for example, VAT or Value Added Tax. You know the drill by now. Joe’s got a choice. How much time and resources can he afford to invest in this process versus how much risk is he willing to carry–or what other option is there? Well, for many businesses, increasingly, the option is clear. There is sales tax technology out there that can automate this whole process
For example, Avalara’s AvaTax can handle each of these elements for Joe every step of the way. As he grows, the capabilities of AvaTax grow with him, and he doesn’t have to sink time and resources here. He can keep his risk low. In other words, he can worry about growing his business and not worry about his tax pain growing, because he’s covered.
Is your business in one of these stages? Take the time to get ahead of the game by reading the whitepaper “Compliance in the ERP System.” It highlights the difference between manual tax compliance (i.e. rate tables) and automation within your existing framework.