COVID-19 has left massive holes in budgets at the global, federal, state, and municipal levels. Most tax jurisdictions are experiencing a significant shortfall between paying for pandemic response and the lost tax revenue from business and activity restrictions. Indirect taxes––things like sales tax, VAT, fuel tax, etc.––have become a popular way to help recoup their losses and generate new revenue as the world begins to reopen.
Calculating and collecting these indirect taxes has proven challenging for even the largest of enterprises. The process has been made even more cumbersome by the 2018 U.S. Supreme Court ruling against internet retailer Wayfair, which enabled states to mandate that companies collect and remit sales taxes on transactions if they sell products in that state, regardless of where the retailer is physically located. Covid and the changing dynamics of consumer behaviors, means small-to-medium-sized businesses (SMBs) are often ill-equipped to respond to the additional reporting and compliance requirements that will come with these new indirect taxes, as manual calculations become arguably impossible.
Automating Your In-House Tax Expertise
Thankfully, businesses can help narrow the knowledge gap and bolster their in-house tax knowledge, resources, and infrastructure through automation. Automating tax processing enables small businesses to improve accuracy and quickly project and report their indirect tax liabilities., all while increasing productivity. Below are ten benefits of tax automation that help save time, money, and the headache associated with indirect taxes:
Work Smarter and Improve Productivity
- Stay current on changing rates and rules – Business tax codes are constantly changing and keeping current can be a burden on your team––if not all together insurmountable––reducing productivity and increasing anxiety. Small businesses that sell across the country are now tasked with keeping track of unique and frequently changing tax codes in more than 11,000 different U.S. jurisdictions. Automation has the power to help small businesses keep up with the regulations as they change, enabling them to work smarter, not harder.
- Prepare signature-ready compliance returns – Compliance returns can be tedious and are hot spots for audit-inducing errors. Automation makes them easy, available, and accurate in just a few simple clicks which is especially important now, as government auditors are likely to use a much finer tooth comb on 2020 taxes in order to recoup for Covid-related revenue losses.
- Manage additional tax compliance requirements – Businesses also have to keep careful track of several types of tax compliance requirements. Tax software and technology can help business leaders oversee income tax reporting, information reporting, property taxes, and more clearly and concisely.
Improve Accuracy and Reduce Costly Errors
- Gain access to up-to-date research with global coverage – The global economy is no longer the sole domain of the Fortune 500. Today’s digital economy means small businesses can operate in any tax jurisdiction around the world. Keeping on top of the constantly changing regulation for indirect taxes in the U.S. is nearly impossible without help. Its clear that the burden falls upon the seller to know, understand, and comply with the tax collection and reporting requirements for any jurisdictions where they have customers. Technology can not only provide real-time insights and data on changing tax regulations anywhere your company does business, it’s essential for operating your business compliance.
- Save time and money by reducing errors – Errors in business can be costly. Errors in tax compliance can be disastrous. Manually formatting and transitioning your tax, finance, and sales data from multiple data sources creates a breeding ground for errors and omissions. Automating your tax compliance processing helps improve accuracy, saving you time, money, and heartburn.
- Validate and adjust shipping addresses – Incorrect shipping addresses can be both annoying and costly. Since shipping addresses are used to calculate the indirect taxes for each transaction, bad addresses are more than just a logistics problem. Cloud-based platforms have the ability to maintain constantly updated address databases that can instantly validate shipping addresses, making corrections when necessary, to ensure that small businesses are collecting and reporting the right amount of taxes for each transaction.
- Apply your tax policy consistently – Inconsistent and inaccurate reporting (or underreporting) of sales tax is one of the most common reasons SMB’s get audited. With so many different sets of regulations, it’s surprising that audits aren’t more common. Automating your tax processing is one way to ensure that you collect and report sales tax accurately and consistently, regardless of the customer’s location. On the opposite end of this spectrum, some small businesses leery of audits end up tucking away more funds than needed come tax season –– funds that could have been more appropriately allocated to business growth. Automation helps to clear up these sticky scenarios, allowing SMBs to reserve the right amount without over or under estimating.
Automate Your Reporting and Projections
- Generate audit-defensible reports – The IRS has announced it plans to increase audits on small businesses by as much as 50% in 2021. It is only reasonable to expect other authorities and regimes to follow suit. Audits are costly, time-consuming, and take up resources that could be better used to grow your business. With automated tax processing, business owners can easily respond to an audit with a few mouse clicks, providing accurate, up-to-date reports, documenting the proper collection, remittance, and reporting of all indirect taxes.
- Build a roadmap for future tax processing – The faster your business environment changes, the more important it is to have the right tools and resources in place to help you move forward. Adding physical infrastructure or growing your accounting and IT staff takes time and limits your flexibility. Using cloud-based tools to automate your tax processes allows you to plan ahead, reduce capital expenditures, stay on top of changing regulations, and respond quickly to your customers and market.
- Make the most out of your technology investment – Capitalize on the investments you’ve already made in your IT infrastructure by integrating tax technology that supports your current billing, financial, and e-commerce payment platforms. It’s important that any automation you implement will play well with your existing systems and help you get the most out of what you already have.
Global Tax Compliance in the Cloud
As your business grows, calculating, collecting, and reporting global indirect taxes becomes more critical and complex. Forward-thinking companies rely on cloud-based global tax determination platforms to automate transactions, scale existing infrastructure, and make indirect tax determination manageable.
Ray Grove, VP of Product Management, Indirect Tax, Thomson Reuters