Among all the different technologies that automate business, sales tax is often the last on the list. It takes a great event for many owners to realize they are in need of sales tax automation. Most are wondering, “Why would I need that?” However, there are a lot of signs in business that signal it’s time for sales tax automation.
We highlight 10 of the most common signs that show it is time for a business to embrace sales tax automation.
The more you grow, the more great events happen for a business, from more customers to greater revenue and market share. So, more is good right? Yes, but it comes with more sales tax responsibilities, as well. Consider if you expand into new states, whether physically or distributional through ecommerce sales or a wider distribution. Crossing state lines with sales can make taxes more complex and create more compliance burdens. If you are able to grow globally, then you will have to take value-added tax into consideration, on top of U.S. sales and use tax.
If a funding event occurs, no matter if it is private or institutional, an IPO or an exit strategy, investors will have a magnifying glass over your company’s finances. What most don’t realize, is this includes how you manage your taxes. If an investor were to discover an unfavorable audit or mismanaged sales and use tax, you can say goodbye to a deal. Depending how you use that funding, you may also be subject to new tax rules. To avoid surprises in the long run, you need to manage all of your taxes now.
- Acquisition and Mergers
During the lengthy process of an acquisition or merger, sales tax usually gets pushed to the wayside. Trying to mesh people, assets, systems and process is a huge task, however, many forget that a lot of the reasoning for acquiring a business – more market share, a broader product mix, physical property – are tax liability triggers. Although tax compliance may seem minute during the big picture of a merger, it needs to be handled carefully.
- Key Hires
If you end up hiring a new executive position, such as a CFO, they will probably want to take a good look at your compliance practices and give some new suggestions on how to operate the business. You may end up re-evaluating your financial systems and onboarding new solutions, such as sales tax automation, which will fill the gaps.
- New Products or Services
It’s one thing to add a new product version or add an upgrade to a previously available product. It’s another to add a brand new product or service and it will change what you are taxed for. Consider a software company that adds online streaming to their current CD production, a furniture store that adds a delivery service or a cosmetics store that adds a line of health shakes. These types of products and services will have vastly different tax rules than what was previously sold, and the rates can vary state to state.
- New Sales Channels
Deciding to sell through different channels will add to your sales tax burden. This includes manufacturers selling direct to consumers or retailers branching out into ecommerce. The new channels may create an obligation for your business to register and collect sales tax in multiple states. Some channels, such as subscriptions, SaaS delivery and multi-level selling can come with their own tax rule headaches. Adding a new sales strategy comes with risk no matter what, worrying about sales tax shouldn’t become the main issues.
- Technology Platform Change
The more your company grows, your technology will have to grow with it. There are tons of available solutions for every business need, many of which can integrate with your ERP, business solutions and accounting systems. Sales tax automation software also has these capabilities, leaving no excuse not to leverage a solution that can help scale operations and grow more efficiently.
No one hopes to have to scale back, but it happens and it is a proven strategy for doing more with less. Instead of burdening employees with more work or sending your taxes off to an accountant, there are technological solutions that can handle it for you. Sales tax automation will be there for you when you need to tighten up, and ready for you when you begin to expand.
Half the pain of an audit is that they spring up with no warning, you will never know when or if you will be audited. If you have never been through one before, it is time consuming and costly. Wakefield estimates that an audit can cost a company up to $114,000. If the audit doesn’t go well, you will stay on the auditor’s radar and are more likely to undergo a repeat scrutiny. Staying on the offense will keep you clear of audits, sales tax automation like AvaTax gives a 100% audit accuracy guarantee.
- Regulatory Changes
States can change tax rules at any time, and majority of those come with minimal notice. Just last year, 11 states considered taxing services, as well as goods – a rule that 18 other states already enforce. This year, 17 states are considering introducing new economic nexus thresholds or changing their nexus laws. Even tax laws as minimal as a sales tax holiday can become a significant issue if you’re unprepared. So how do you keep up? Sales tax automation can keep your business informed and on top of all the changes.
All of these events are highly common, and highly likely for you to encounter in the new future. Whether it is hiring a new executive or encountering an unexpected audit, these can spring up without much warning. Instead of waiting to run head on with the issue, implementing sales tax automation can keep you ahead of the problem.
No one is immune to these issues. Download Competitive Advantages of Sales Tax Automation to read a personal view of how these types of events of impacted leading companies and how they managed it with sales tax automation.