Making Sales Tax Less Taxing

Have you heard the joke about the sales tax audit?

No one has. There is nothing funny about a sales tax audit.

In the USA, 45 states, the District of Columbia, 4,696 cities, 1,602 counties, and 1,113 other jurisdictions impose some form of sales tax. There is no joke about trying to keep current with this many changes for an everyday routine calculation. Remember, the accuracy of a sales tax calculation is never praised, it is only noticed when it is wrong.

Compliance steps rarely demonstrate ways to add value. However, the process surrounding sales tax calculations, collection and reporting impacts a most important business asset – your customers, or your clients’ customers. As states and local tax jurisdictions experience sales tax revenue decrease and their revenue expectations shrink, they will aggressively look for non payers through enforcement of the nexus concept. If nexus is established, then tax collection and remittance is required.

So where does the value add come into play? Sales tax is a compliance process that impacts your customers or your clients’ customers. When it is done right – there are no problems. When something is wrong: calculation, reporting, payment - there is a price to pay. Any under collection could result in a cut in the expected profit margin. If a sales tax audit shows amounts due from past transactions, it is almost impossible to collect from customers. When customers are charged the wrong rate, there is immediate ill will on the part of the customer as well as the potential for a lawsuit.

In addition, there is an unplanned time and dollar cost to answer customers’ questions about improper sales tax calculations. Often customers will call about a sales tax calculation that is only a few dollars. Each answer requires staff time to take the call, retrieve the sales document, review the calculation and rate, and respond. This effort could consume at least one labor hour, not to mention having an unhappy customer. If a refund is due, a refund must be issued, approved and tracked including updating the sales tax return and financial accounting records. If you add all the staff time, time to process the refund, and updating all accounting records, it could easily exceed $50 to correct a $1 sales tax error.

There are other system wide requirements to update the customer records, sales information data, local, county, state and federal reporting requirements. Doing the job right the first time will keep customers happy, reduce non-productive time and make any sales tax audit efficient. Vertical Solutions offers a complete Sales Tax Management Systems integrated to Microsoft Dynamics GP (Great Plains).

Want to learn more about these major trends in the sales/use tax arena? If you are in the Pittsburgh area, attend our First Tuesday Networking Event on November 2, 2010. We will discuss:

• Efforts by taxing jurisdictions to collect more
• Law changes focusing on the unification of sales tax collection and reporting
• Sales Tax Management Systems vs. manual research

Registration
Not in the area or unable to attend? Contact Tina Featheringham for more details.