Sales Tax Compliance System Requirements Checklist

Sales Tax Compliance System Requirements Checklist2019-03-09T07:28:21+00:00

In a post-Wayfair world, to the extent that you can automate sales tax compliance, you probably should.

However, your system will need to consist of much more than just software. The people who oversee the process will need to understand and monitor the software closely to make sure the proper amounts are charged to customers and remitted to authorities.

However you plan to divide the work between employees, computers, and consultants, you will need answers to the following questions:

If you have to search through a variety of data files and paper records to answer this question, then it might be time to implement a new software. Consider whether it’s time to implement a system that combines invoicing and sales tax calculation. Some systems even have a sales tax reporting module
Your system needs to account for the following:

  • Where are the goods being delivered?
  • What threshold of transactions triggers sales tax in that state?
  • Has your volume of sales hit the threshold?
Things start to get complicated in sectors where some products are exempt from sales tax or subject to different taxes. Healthcare products delivered by mail are an excellent example. They can be exempt from tax in some areas, subject to regular taxes in others, or covered by specially designated rates in some states. Although some software comes with a preprogrammed “taxability matrix,” unless the software is industry specific, you will need to customize that matrix to your business.
Some of your customers may not be subject to sales tax. For example, non-profit corporations or government agencies may not be subject to sales tax.  Also, resellers who can provide a resale certificate are not subject to sales tax. Your system will need to delineate which customers are and which customers are not subject to sales tax.
Any system that attempts to automate this function needs a high degree of geographic specificity. A product sent to the 1500 block of one street could be in a different jurisdiction and subject to different rates than the same product sent to the 1600 block of the same street.
In some cases, the timing of filings will be based on the volume of sales. The more taxes you collect, the sooner the jurisdiction is likely to want its money.
Some states will allow central filing at the state level. Other states have businesses file and pay amounts in each locality.
Many factors in the sales tax equation are subject to change. You will need to be clear at the outset on how your system will learn about these changes and adapt to implement them.

  • How will your system adapt to changes in states’ sales tax regimes (such as rates, exemptions, thresholds, or filing addresses)?
  • How will your system accommodate changes in your business that affect sales tax obligations, such as sales into new jurisdictions and increases in volume to existing customers?
  • Who will be responsible for monitoring automated updates and managing each type of change?

For a more detailed discussion of how your sales tax system meets the challenges that arise as a result of the Wayfair decision, please contact CRI.