“How hard can sales tax really be?” asked the Federal Tax Director, who was managing our State and Local Tax group on an interim basis. The question followed her assertion that the sales tax team didn’t require access to an online tax research tool since they “only collect and remit” the sales tax.
This sales tax “fiction” is a common perspective held by many outside the sales tax profession. It ignores the challenges of keeping up with the complex tax laws in every state and the enormous tax exposure risk avoided by ensuring compliance.
But even less understood, is that sales tax professionals can actually help create a competitive advantage! No, not the kind of competitive advantage that brick and mortar stores think they’ve lost to online retailers. In that scenario, the online purchase IS actually taxable, but states don’t enforce the remittance of use tax from individual consumers. I’m talking about lawful competitive advantage. Yes, they file tax returns, and yes, they do protect the company by knowing and applying every state’s laws. But, they are also deal closers, pricing strategists, and customer service advisors.
How, you ask?
Deal Closers: A few years back, we bid on a multi-million dollar project to provide all the equipment for a new facility the customer was opening in Philadelphia. It all came down to one final issue for the customer. I got the urgent call late in the day, and the critical question was, “Would we voluntarily collect their city of Philadelphia sales tax?” You see, we were only required by law to collect the state sales tax since the order and shipment originated outside the city. And, for us (as well as our two competitors), our tax software’s default set-up only calculated the 6% state sales tax rate on the quotation. We readily agreed, made the necessary changes in the software, and received the signed order that day. It was our willingness to accommodate their need, our ability to overcome the software challenge it presented, and the priority we put on their request, that finalized their decision.
Unlike individual consumers purchasing online, businesses get audited and will be assessed, with penalty and interest, if they make a taxable purchase and don’t remit the use tax. Business purchasers prefer to pay sales tax over the task of identifying and self-remitting use tax. Many companies will select a supplier who collects their sales tax over another supplier who does not.
Pricing Strategists: Although it may not ultimately drive the final pricing decision, input from the tax department is needed during the pricing phase of product development to identify potential sales tax exemptions available to the customer.
For example, does the product manager (or salesperson) know that by not bundling the pricing of electronically delivered software with hardware, it could save the customer an average of 8% sales tax in many states? Software license agreements are a material expense for most companies and the tax exemption savings are not inconsequential. There may also be opportunities to offer “load and leave” services where electronic delivery does not apply.
Some states have a provision that allows a lessor to make an election to pay tax on the purchase of the equipment instead of collecting sales tax from the lessee on the revenue stream. There are certain industries where leasing equipment is routine and you can be sure that the purchasers are considering the tax election in these states when selecting the supplier.
Customer Service Advisors: A company’s sales tax department is involved in many aspects of the business, including talking to customers. Customers call when they are under audit. They call when they don’t understand why certain charges were taxed. They call to ask, “Why is there tax on my order, I thought all sales over the internet were exempt”? The variety of customer service issues sales tax departments have to respond to requires a deep knowledge of current tax topics, including explaining what nexus is and what the “Internet Tax Freedom Act” is not, as well as refined customer service and communication skills.
The Sales Tax Fiction: Sales tax staff do nothing but collect and remit tax. (They don’t add any value. All they do is drop numbers into forms.)
The Sales Tax Fact: The sales tax department can help gain competitive advantage that adds real dollars to the bottom line.
The sales tax profession is misunderstood and often mistakenly stereotyped as a simple, repetitive process that anyone can do. In reality, it is a perplexing and intricate tax discipline, and those with expertise are valuable to business planning and growth.
What fiction stories do you have? Let’s hear them!
Other recent “Fiction and Fact” posts by Alison Manning, CMI:
- Sales Tax Staff Do Nothing But Collect and Remit Tax... Yeah, Right!
- It's on the Sales Tax Assessment, so it MUST be Taxable!