Beruflich Dokumente
Kultur Dokumente
Unless they have a vintage flair, most people wouldnt dream of using a rotary phone when a cordless or cell phone is available. Yet the same people might not think twice about handling core business functions with similarly outdated tools. Take sales tax compliance. In many ways, using a spreadsheet to track sales and use tax obligations is analogous to using floppy disks to store data. This approach requires manually reviewing rate, rule, and boundary changes for each jurisdiction into which taxable sales are made. It also involves an encyclopedic knowledge of product and service taxability, rigorous tracking of state and federal statutory changes, and an expert-level grasp of exemptions, destination-based sourcing, and other sales tax related minutiae. The stark reality is that most companies cannot afford to screw up sales tax. The consequences of making mistakes (mistakes far more likely with error-prone manual processes) are dire. As states look for ways to boost uncollected sales tax revenue, sales tax practices are increasingly under the microscope. While sales tax compliance is no laughing matter, the following list of what to do to increase sales tax audit risk hopefully demonstrates the right approach to ensuring real compliance. Here are 8 (tongue-in-cheek) surefire ways to increase your companys sales tax audit risk.
Skeptical that upgrading and automating sales tax compliance is necessary, many managers unknowingly expose their business to audit risk. Some companies might even budget for negative audit findings rather than invest in an automated solution to mitigate risk (like budgeting for fire damage to ones home rather than purchasing smoke detectors). In their report, Effective Sales and Use Tax Management: Reducing Errors and Increasing Productivity, the Aberdeen Group identified an alarming statistic Many financial officers underestimate the cost of sales and use tax compliance by 50 percent. These CFOs often assume sales tax compliance is handled, due to the limited visibility of sales tax transactions and their lack of integration within manual billing and procurement process es. Given that the average penalty cost of a negative sales and use tax audit is $34,000 per occurrence, this assumption could bring ruin to many small- and medium-sized businesses.
Page 1
The report also indicates that managing sales and use tax compliance manually takes a full 24 accounting days per year. Furthermore, when other hidden costs are taken into account, the annual cost of manual compliance process is approximately $327,000. These figures help explain why more companies are turning to automation to help keep their sales tax reporting current, compliant, and cost effective. From a cost versus benefit perspective, not automating simply poses too much risk.
2. Address sales tax compliance reactively, rather than proactively. Or, Well worry about it later.
Despite their best efforts to comply with statutory sales and use tax requirements, many companies fail to address risks proactively. The implicit assumption, that the companys audit risk is nominal and can be addressed at a later date, can become a self-fulfilling prophecy. According to the Aberdeen Group Report, The errors associated with such a methodology have contributed to negative audit results subjecting the companies to have fines/penalties and cost of corrective labor. Auditors typically insist on a provable rationale behind calculations and computations. As many companies can sadly attest, auditors tend to be skeptical if there is no easily understandable and provable process. It is an omission bound to lead to a negative finding and a major hit to the companys bottom line. In short, automation is all about preparation. One of its most appealing functions is the ability to provide a consistent, documented, and predictable process, which is exactly what state examiners want to see.
Page 2
Page 3
transactions; for the unregistered, auditors need to see seven years of transaction records. Such audits and penalties can be costly.
Page 4
Automation contains sophisticated logic that can work with complex formulas in any state, and justify all non-tax reporting as permitted by the certificate. It can greatly reduce, if not eliminate, audit exposure for non-taxed transactions.
What Automation Can Do For You: Validate and calculate rates accurately. Identify potential nexus issues. Accurately manage exemption certificates. Integrate with existing ERP systems. Save valuable time and money and redirect employees to revenuegenerating activities.
Page 5
tax auditors who represent them, grant companies little latitude on sales and use tax calculations, compliance, and remittance. Their relentless efforts appear to be paying off, as the U. S. Census Bureau reported in a recent summary of state and local government tax revenue. According to the report, state tax revenue was up 5.21 percent. General sales tax revenue demonstrated a similar trendrising to $72.1 billion, 4 percent over the same quarter in the prior year. Despite a down economy, state taxation departments have increased collections by finely analyzing sales tax payments. State coffers are being filled by the fines and penalties paid by companies that have failed audits. These failures can often be attributed directly to inadequate, out-of-date, and manual tax management policies.
CONCLUSION
The costs associated with negative audit findings can wipe out the profits of a small- to midsize business. Companies that rely solely on manual accounting solutions or discon nected tax tools do so at their own peril. They may be unintentionally pulling a trigger that could lead to an audit notice. Automated solutions are the most effective protection against audit that a company can utilize.
Get Started.
To learn more about pricing, view online demonstrations, or chat about AvaTaxs capabilities, visit: