American sales tax professionals identified interstate tax liabilities (71 percent) and inaccurate data (57 percent) as the biggest risks facing their businesses, according to a new Wolters Kluwer Tax & Accounting survey on sales and use tax compliance. Their responses highlight the complexities born out of varying sales and use tax regulations for organizations that operate in multiple states and/or sell products online.
The survey also found that only 17 percent of surveyed tax professionals rated audit penalties as the biggest risk. This despite the fact that an overwhelming majority, 97 percent, were audited in the last five years, and of those audited, 17 percent faced fines. On average, fines range between one percent of revenue for small companies and two percent of revenue for medium to large companies.
“Many sales tax professionals might be missing an opportunity to elevate their contribution to their company’s bottom line,” said Mike Sanders, Vice President of Product Management at Wolters Kluwer Tax & Accounting, North America. “One to two percent of revenue represents significant cash value that might have been allocated to other strategic growth plans had there been no penalties. Tax and business leaders need to recognize that sales and use tax compliance is not just a tax issue; it’s a business issue — the effects of which can impact growth, profit and/or investment capital if not well accounted for.”
Addressing Sales and Use Tax Compliance
Some savvy organizations have recognized the significance of effective sales and use tax compliance management and are striving to reduce audit burden and penalties. These industry leaders, who fell in the top 35 percent aggregate for performance scores, chose software that focused on the efficiency and effectiveness of their data collection and reporting while also ensuring accurate tax calculations. Over three in four (76 percent) of leading organizations streamlined their sales order tax calculations based on tax rates, and 68 percent centralized their tax information management.
“The survey results demonstrate the fact that best-in-class companies are focusing on the much-needed automation tools and processes required to make sales and use tax compliance easier and improve the accuracy of their data. However, this trend needs to grow significantly for more organizations to see the tangible benefits that arming their staffs with the right tools can provide,” Sanders noted.
Cloud-based Sales and Use Tax Platforms Gaining Popularity
According to the survey, nearly two-thirds (63 percent) of respondents retained on-premise sales and use tax solutions, while 24 percent were based in the cloud. However, the number preferring a cloud-based solution seems to be gaining traction with a sizable 38 percent stating they would prefer their sales and use tax platform to be based in the cloud.
“The cloud has the power to significantly enhance sales and use tax management by increasing efficiency, allowing staff to spend more time on value-added client activities. Plus, anytime access to information can help tax departments increase their response times,” continued Sanders. “We anticipate a sizable shift towards cloud-based sales and use tax platforms in coming years given these benefits.”
Conducted by the Aberdeen Group, this study was based on input from over 260 corporate tax professionals. This report illustrates the challenges and risks organizations face when managing their sales and use tax processes and highlights how leaders in sales and use tax compliance address these business issues. The report further covers what organizations need to do to improve their own sales and use tax compliance and avoid costly fines. The full white paper can be found at SalesTax.com.