How can businesses take steps necessary to be ready for a sales and use tax audit? In today’s globalized economy record-keeping has become even more important in being fully prepared for an audit. One of the important benefits of cloud accounting software is the ability to improve your ability to easily track all transactions. This along with special compliance software to help track sales compliance internationally can help ensure your company can be ready for any audit.
Sales tax automation systems have improved greatly over the past decade and are quite sophisticated systems that can be fully integrated into a business’s enterprise resource planning (ERP) system. Many businesses use some type of automated system to ease the burdens associated with sales and use tax compliance and improve their level of compliance
Sales tax automation systems remove human effort from the sales tax compliance process and replace it with a software system. Sales tax automation systems focus on one of two distinct parts of sales tax compliance. These systems focus on complying with state and local sales and use tax laws (including determining the proper rate and taxability of a good or service) and preparing returns. For our purposes in this article we will focus on front-end systems, or those that manage compliance with state and local tax laws.
Front-end automated sales and use tax systems come in different types. The simplest systems automate order and billing processes. That type of system does not provide much help with sales tax compliance because such a system does not usually include regular feeds of up-to-date sales tax information and doesn’t include tax return filing assistance. Another option is to have an integrated automated solution that includes sales and use tax tables and taxability rules for goods and services. This solution would be integrated with your business ERP system or billing or accounting system.
A good integration includes a few key components. The data being passed should include detailed information about each sale, including the destination, origin, location of the order. the type of transaction, the specific good or service sold, and the dollar amount. That data is then fed seamlessly into the sales tax system. The information collected is needed to determine the proper rate and whether the transaction is taxable. Ideally, it will also enable return filing, enabling businesses to more easily file monthly returns.
Businesses should ensure that they are getting a solid system that also provides them with current taxability rules for goods and services. State tax regulations and rates are subject to constant change. Out-of-date information for a taxpayer leads to inaccurate or incomplete filing that in turn causes many headaches. Many tax automation systems offer researched tax decisions. That means the company providing the solution will have a team of researchers that addresses taxability questions and, typically monthly, the solution will be updated. It can be reassuring for a business to have tax professionals researching the taxability of a particular good or service.
Compliance is increasingly complex, given the number of state and local sales tax jurisdictions, changing tax rates, and issues of nexus and taxability. Sales tax automation software is a great asset to businesses in managing sales tax compliance. The key is a tax accounting solution that enables the company to capture the details of all transactions across the company. Accurate records combined with the latest, most updated tax information increases the odds that your company is meeting your tax compliance requirements across the globe.