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The Role of Automation in Sales Tax Compliance

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Unlike federal taxes, sales and use tax is collected and remitted to support various state, local, and regional services directly. Different jurisdictions have their own tax regulations, and this includes factors such as tax rates, sales tax holidays, nexus thresholds, and sales volume – all of which can influence your sales tax responsibilities.

How can a business that sells items in multiple states and jurisdictions manage so many sales tax processes without accidentally violating tax laws?

It’s simple: automation.

An automated sales tax management solution makes tracking your sales tax easier than ever. You can quickly see where you need to report and pay the correct amount of sales tax on time, while also conveniently storing and managing compliance certifications and licenses, all within a single platform.

Understanding the sales tax challenge

Sales tax is complex and multi-layered. If your company operates in only one or two states where it has sales tax obligations, managing it might not seem that difficult. But what if your business keeps growing and you eventually start selling to customers online and all across the country?

The reality is that your sales tax responsibilities and the number of states where you’re required to collect taxes will increase, which will add complexity and raise the potential risks involved in staying compliant.

How can your company benefit from sales tax automation?

If you’re not already automating your sales tax processes, here’s why you should start:

  • Stay compliant as your business expands

As your business grows, so do your tax responsibilities. With more operations or new sales channels, you might find yourself needing to collect and remit sales tax in multiple states, as you know by now. If you’re not prepared to manage additional tax obligations or keep up with new tax laws, you’re in for a ride.  

Sales tax software takes away any uncertainty. It ensures that every transaction applies the right rates, follows the rules, and applies exemptions accurately. This means you can rest assured that the correct amount of tax is collected, reported, and sent to the right taxing authority, every single time.

  •  Reallocate your resources wisely

According to Aberdeen Research, the most successful companies prioritize compliance and forward-thinking finance leaders are three times more inclined to automate sales tax. Their biggest motivator is to free up resources that can be better used in other areas of the business.

When you eventually choose to automate your sales tax calculations and filings, you too, can free up valuable time and manpower that can be redirected towards serving your customers better, expanding your product line, or improving marketing strategies.

  • Get on-time filing discounts available in your state

There are 27 states in the US that provide discounts or rebates for filing on time, including Alabama, New York, Nevada, Minnesota, Mississippi, Missouri, Montana, Wyoming, Texas, Utah, South Dakota, and Tennessee.

If your business operates in one of these states, your on-time filing discounts or rebates will be calculated, collected, and refunded to you automatically. Depending on your sales tax collection and your state’s discount, your refund could cover the cost of sales tax automation.

  • Ensure your shipping details are 100% accurate

Errors in shipping addresses are all too common. Because these addresses are used to calculate taxes on every sale, mistakes are bound to impact your finances. Cloud-based platforms maintain updated address databases and quickly verify shipping addresses, fixing any errors as needed.

This guarantees that you are accurately collecting and reporting the right amount of taxes for each transaction, which will help to avoid costly mistakes and maintain compliance with tax regulations.

  • Prepare for future tax processing

Planning ahead for how you’ll manage taxes as your business grows and evolves is more important than you might think. Instead of investing in physical infrastructure or hiring more staff – which can be extremely time-consuming and restrict your flexibility – using cloud-based tools to automate your sales tax processes will save you money upfront, keep you updated on changing regulations, and allow you to respond quickly to customer needs and drastic market shifts.

Do you really need to automate sales tax early on?

When your company is still relatively small, you might think that automating your sales tax process will only complicate things. But that’s simply not true. This is actually the perfect time to consider automation.

Why? Because when your business is still in its early stages, you still have the opportunity to set up efficient systems that can adapt as your company grows or changes. If you wait until later – when you hit certain milestones, expand into new areas, or change your business model – it will be harder and more disruptive to implement.

In this day and age, it also doesn’t make sense to manage your own tax system. It’s not practical. Chances are, you don’t have the staff to manage sales tax calculations, and it’s not something you’d want to take on. You’re better off investing your resources elsewhere.

Implementing Complyt’s sales tax compliance solution

It’s extremely draining and inefficient for you and your team to always worry about whether your business is filing taxes accurately across various states and jurisdictions, or if all your legal paperwork is up to date.

That’s why more and more best-in-class companies are ditching traditional, manual methods of managing sales tax and switching to automated solutions. Let Complyt help you stay compliant and make your tax responsibilities less taxing. 

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