Sales tax isn't simple: Is outsourcing the answer?

There’s nothing like just walking down the hall of your office or clicking into a virtual team meeting to get an answer on something as complex and important as your company’s sales tax obligations.

To handle sales tax in-house, you need someone on staff who understands evolving rules and regulations; can track a galaxy of filing deadlines and notices; and understands how your company growth changes tax obligations.

TaxConnex’s recent market survey of 100 top finance professionals found that almost half (46%) of respondents used internal sources to prepare and file returns and more than half used internal resources to track nexus and manage jurisdictional notices and communications. Almost as many (43%) relied on internal resources for the all-important task of calculating the correct sales tax.

Clearly, internal resources are key to many companies meeting sales tax obligations. But how easy is it to put these resources together? Tupperware recently admitted that it lacked enough accountants to get its annual report out on time. About 70 companies also reportedly have had to postpone annual reports, according to recent research.

Supply chain

Teams are leaner than ever as existing employees quit and new ones are harder to find. Aside from having to provide salary, benefits and other requirements of an in-house employee who knows sales tax (not always a common skill), you face a talent dearth, as the accounting profession still has a shortage of accountants and tax specialists.

Fewer students are gravitating toward accounting even as educational requirements have intensified. Accounting is perceived as too specialized and boring – and offering lower pay than other majors such as finance and technology. On the other end of accounting, the profession, like many fields, fears a looming retirement wave.

Our survey found that almost one in 10 companies look to outsource because they can’t find hirable staff to fulfill their sales tax obligations. More than one in five look to outsource because they lack the internal resources to handle the many aspects of sales tax compliance. Other responses included lowering costs, gaining access to expertise and reducing risk.

If you don’t outsource, you and your remaining staff pick up the slack. Chances of errors multiply as fewer people do the work of compliance with more on their plate – sometimes without the proper expertise.

Question what your staff can handle:

• How many of your staffers will it take to handle your current and futuresales tax obligations?
• What resources will your people need to handle this responsibility?
• What will be their reaction to the new workload – and your potential cost of employees quitting down the road?

There’s another consideration for going in-house: The legal liability is all yours if you miss a compliance matter.

Vendor shopping

Your compliance process starts with pinpointing your sales tax nexus and the taxability of your products and services in those states where you have nexus. You then need to create a billing process to apply tax to your invoice, manage your sales tax-exemption certificates and prepare and file sales tax returns.

You can outsource to many different software companies, CPA firms and other specialty firms to handle these tasks, but again come questions:

• What’s the vendor’s focus? Do they specialize in tax compliance at the state and local levels? What’s their customer service? How many professionals will they dedicate to you?
• Are they qualified (sales and use tax practitioners usually aren’t regulated)? Are they experienced with auditors?

When searching for a firm to outsource your compliance work, get proposals from at least two firms, identify the services you need and give details about your business.

A lot goes into sales tax compliance. A lot goes into deciding to outsource, too, but with proper preparation it can be a viable choice.

If you want to reduce costs, increase efficiency and minimize the risk of noncompliance, reach out to a sales tax expert. Consider working with TaxConnex. Contact us to learn what it means when sales tax is all on us.