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Reviews For Your Firm SALES & USE TAX INTEGRATED SALES TAX MANAGEMENT SYSTEMS BASIC SYSTEM FUNCTIONS • General navigation/ease-of-use • Installation process • Multi-company management • Multi locations • Remote Access Capabilities COMPLIANCE CAPABILITIES • Multi-Jurisdictions • Automated compliance tools • Electronic Filing & Payment • Rate Updates INTEGRATION/IMPORT/EXPORT • Data output options • Reporting • Integration with accounting system HELP/SUPPORT • Built-In Support Features • Support Website/Documentation • Live Support TRADITIONAL SALES TAX COMPLIANCE SYSTEMS BASIC SYSTEM FUNCTIONS • General navigation/ease-of-use • Installation process • Multi-company management COMPLIANCE CAPABILITIES • Multi-Jurisdictions • Forms preparation • Electronic Filing & Payment • Rate Updates INTEGRATION/IMPORT/EXPORT • Data output options – pdf copy • Reporting • Integration with accounting system – summary report HELP/SUPPORT • Built-In Support Features • Support Website/Documentation • Live Support Isaac M. hnol Editor O’Bannon, Technology Editor O’Bannon, Tech logy S 44 44 August 2011 CPAPract Conquering the Challenges of Sales & Use Tax ales and use tax compliance is an area of widely varying complexity. For many of the smallest entities that conduct taxable transactions, particu- larly physical retail businesses with only one or two locations, the process of applying the appropriate tax rate and reporting it to their states is oſt en quite simple. And almost all states that have sales taxes have added online reporting and remit ance systems, making it even easier for these small businesses to dutifully collect, report and pay. Even in this simplest of sales tax scenarios, there are other processes that occur, of course, such as determining the taxability of an item, dealing with purchasers who may be exempt from such taxes, the collec- tion of the funds, and proper bookkeeping to segregate them into appropriate liabilities accounts. T ere are also special taxation rules, such as tax holidays, tax districts and caps or maximums. And diff erent states tax some things diff erently: Some tax services and rentals, while others don’t. Likewise, some tax certain foods and medications, while others exempt them all. For very small businesses, these functions can be handled fairly easily, albeit with an eye for detail and deadlines, and hopefully with the occasional bit of guidance from their public accountant. As businesses grow, however, the complexity and labor involved in compliance can grow dramatically. Whether the growth is in transaction volume, new storefront locations, the addition of online sales, distribution, and delivery channels or a combination thereof, multi-hat-wearing managers and business owners can quickly fi nd themselves overwhelmed. Suddenly, nexus issues come into play, as well as keeping up with frequently changing tax rates and reporting requirements and frequencies across more and more jurisdic- tions, potentially even hundreds or thousands for even small ecommerce entities. Variables in the taxability of products also grows, as does reporting the sales from separate August 2011 • www.CPAPracticeAdvisor.com locations. T ese challenges are compounded even further for businesses diverging into diff erent types of activities, particularly manufacturers, wholesalers and distributors. As in any area of compliance, signifi cant penalties can result from failing to file correctly, whether due to fatigue or misun- derstanding. And while self-file state websites off er the basics for the simplest fi lers, they oſt en lack the features necessary for those with more complex concerns. Finding a solution that meets the needs of the small business therefore becomes critical. T ere are many programs and online tools for sales and use tax compliance management, both for small and mid-sized entities, as well as for much larger businesses. 45 STATES AND WASHINGTON, DC HAVE SALES TAXES. THE 5 U.S. STATES WITH NO SALES TAX: Alaska Delaware Montana Oregon New Hampshire T e market is essentially divided into two types of programs and, as we did last year, this year’s review of Sales and Use Tax Compliance systems is divided into these two types of programs. First, there are Traditional Sales Tax Compliance Systems, where the system is used at the end of a reporting period to calculate, prepare and sometimes e-file forms and payments to taxing agencies. T is is the more familiar model of sales and use tax reporting for businesses with one or a handful of locations. T e systems may support only a few states or off er compliance forms for all, they oſt en include tax rate tables that are updated periodically or, in the case of web-based systems, are auto- matically maintained and updated by the program’s vendor. For entities with more dynamic taxation needs, especially those with multiple locations or online sales that expose them to compliance needs in hundreds or more frequently changing jurisdictions, the tra- ditional aſt er-the-fact model can work for reporting, but that becomes only half of the bat le. T e challenges these businesses face simply keeping up with changing tax rates and rules across the thousands of taxing jurisdictions in the United States and Canada become impossible to manage manually, and the potential risk of errors and penalties on this side of the equation are just as signifi cant, if not compounded by the sheer number of taxing agencies and reporting requirements. This is where Integrated Sales Tax Management Systems can play a vital role. Such programs have databases that can include every tax rate and all of the taxability rules for every state, city, county and special district in North America, and use secure servers to feed that information into a business’ sales, e-commerce and other fi nancial systems. T is allows the system to automatically determine and verify tax in real-time as a transaction, estimate or e-shopping cart function is accessed, based on either the location of the retail establish- ment or their customer’s address. Each of the three “integrated” systems reviewed here also offer outsourced compliance options, through which a business can have the vendor handle all reporting requirements to all necessary jurisdictions, including printing, fi ling and payment. How does a business know when it’s time to start looking for a sales and use tax program? If there are penalties for non- compliance, that’s a pret y good clue, but also if managing the processes is becoming tedious and increasingly time-consuming. T e fi rst step in selection is determining the needs of the small business in terms of their complexity. Some accounting practices are also fi nding sales and use tax compliance to be a valued client service. As such, some of the programs in each segment offer consoles for managing multiple entities.●