The sales tax compliance landscape is becoming more complex, according to Mike Bernard, Chief Tax Officer, Vertex, who spoke at an AICPA Town Hall event. Changing sales tax rates and rules pose substantial registration and compliance challenges to all companies, especially smaller businesses with tax “departments” of one or two professionals.
Having tax technology tools in place helps tax departments keep pace while limiting the risk of non-compliance and visits from auditors. In our work with companies of all sizes, we see sales tax engines becoming a table-stakes requirement.
Given that post-Wayfair sales tax rules require far more companies to collect and submit sales taxes, it’s useful to keep the following developments in mind as you evaluate whether a sales tax engine can help ease your clients’ compliance burden:
- Increased sales tax activity in local jurisdictions: In 2021, the average county, city, and district sales tax rates each increased while there were 197 new district taxes implemented, the second highest number in ten years.
- Auditing activity has intensified: Sales tax audits have returned to pre-pandemic levels of frequency. These newly aggressive auditors are looking closely at remote sellers to assess their compliance with economic nexus rules and registration requirements that have come online since the 2018 Wayfair ruling.
- Tax automation continues to advance and improve: Sales tax engines replace manual data-collection and compliance work by automatically updating the latest tax rules, rates and logic and by making accurate tax determinations and calculations. These solutions integrate with ERP systems (or general ledgers) and eliminate the need for in-house tax research. Advanced sales tax engines also integrate with procurement applications, e-commerce platforms and other tools in the expanding ERP ecosystem.
Keep these developments in mind when you find new sales tax compliance requirements getting too complex. Stay current on sales tax regulatory and enforcement trends. And remember, technology by itself is not a silver-bullet solution. Documenting workflows for your clients’ transaction tax environment can help to identify strengths and areas for opportunity and growth. Visit CPA.com/SUT for more expert sales and use tax guidance.
