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The End of Sales Tax Calculations

June 25, 2012BY AMS Editor

At a recent webinar hosted  with our partner Avalara, we explored the challenges with sales tax calculations. Why is sales tax compliance so hard?

"In 2010, there were more than 5,500 tax rule and tax rate changes in the United States and Canada" - Avalara

Take the following into consideration

  • There are over 11,000 distinct tax jurisdictions in North America
  • Over 100,000 distinct taxability rules
  • While one product might be exempt, another very similar product may not be
  • Some organizations are exempt
  • Rules for establishing nexus are often complex and confusing

If you add on top of this list the fact that there are thousands of changes in tax law per year, tax holidays are different in each state, e-commerce rules abound… and that’s just the beginning, it is no wonder most CFO’s reach for the aspirin the moment sales tax is the topic of conversation.

The Challenges with Sales Tax

Most organizations are subject to at least one of three typical sales tax challenges, namely:

  1. Research and maintenance of sales tax rates
  2. Product and service taxability rules and exemptions
  3. Tax return preparation, remittance, and payment

Whichever your company’s specific challenge, the odds that your staff spend countless hours dealing with it are pretty good. In addition, there is no guarantee that you won’t get a negative audit result due to some miscalculation? Maybe there’s a better way.

How to Eliminate Manual Calculations for Sales Tax

The usual process for calculating sales tax is:

  1. Enter a new customer address
  2. Determine whether or not sales tax nexus exists in that location
  3. Determine which local, city, county, district and state taxes apply to that customer
  4. Build tax codes, group them for that customer and name them as tax schedule
  5. Find the sourcing rule for each tax code
  6. Build in the rules on how all of your products are classified and taxed in that location
  7. Repeat and correct each time there is a transaction with that customer

As a manual process, sales tax calculation is complicated and prone to errors, so it’s about time a software solution came to help! Sage ERP users already know it by the name of Sage Sales Tax, which is the sales tax automation solution (powered by Avalara’s AvaTax) of choice for Sage 500 ERP and Sage 100 ERP. By automating sales tax calculations you ensure that your company complies with sales tax laws and you shield yourself from negative audit results.

To find out more about sales tax challenges and how to prepare for them, watch our recorded webinar and share it with your CFO, he will certainly thank you!

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