We’ve probably all heard the pessimistic quote from Ben Franklin, who lamented that, “Nothing can be said to be certain, except death and taxes.” But even this rather bleak phrase glosses over just how complicated and miserable completing taxes can be. According to researchers from Villanova University, retailers selling across the US need to stay updated with changing sales and use tax rules in over 11,000 jurisdictions. In just the past decade alone, 5,886 sales tax rates have been changed or created.
Manually keeping up with the constant changes, rules, and regulations has become a major stressor for many SMBs and eCommerce retailers. This is why financing and accounting technology became the top software budgeting priority for SMBs in 2018 and continues to grow in popularity to this day.
Why Transaction Taxes Need to Be Done Right
Growing SMBs, whether they operate entirely online or have brick-and-mortar locations, have to deal with the headaches that come with tax compliance. Sellers have to track which items are exempt from taxes in certain regions, what rules apply to certain products, the different rates in various jurisdictions, and sales tax holidays. If they have different warehouses or distribution centers in other states, they have to consider these details in their taxes as well. In short, for business owners who are experiencing rapid growth, this can become a massive and unexpected burden—and mistakes can have serious consequences.
A larger enterprise can typically handle being audited, thanks to their capable tax departments who can access the required documents and take care of any points of concern. SMBs, however, can quickly become overwhelmed by the monetary costs of being audited and may even be forced to stop running their business for the time being. If a small business owner can’t easily access their company’s past returns, ledgers, and other essential paperwork in a timely manner, they will have to pull their attention away from their actual business and deal with the stressful tax dilemma.
Benefits of Tax Automation
Diane L. Yetter, writer for the Sales Tax Institute, says, “Think of all the different people that are involved in making sales and use tax decisions within your company. Are you confident that each of these individuals is making the right decision when it comes to sales and use tax?”
If you consider the amount of honest human errors that might impact your company, tax automation is a no-brainer. One study showed that companies using tax automation software reduced the time it took to managing sales tax by 50%, and businesses preparing for audit could be prepared in just 8 days rather than the average 37-day timeframe. In addition, companies that used automation were twice as likely to pass a sales audit without penalty than those who manually calculated tax rates
Tax automation is especially helpful for online retailers, since it can automatically provide accurate transaction taxes based on the purchaser’s location and the products they’re buying. It makes the entire store more efficient for the retailer and consumer, and businesses looking to expand their product offerings can do so without worrying about tax compliance issues. Instead of spending hours researching various rates and exemptions, businesses can once again shift their focus to satisfying their customers.
Selecting the Right Solution for Your SMB
All tax automation software is not created equal, and there are several types to choose from. There are cloud-based solutions, plug-and-play types, and even customized software types for unique companies. If you’re not sure which solution is right for you, Vertex, Inc. has plenty of resources for discovering the best type of automation software for your unique business type.
To get started, you can take the Vertex tax complexity quiz, or you can search for solutions based on your industry. If you have further questions or concerns about taxes and eCommerce, you can contact Vertex, Inc. by clicking here!