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Sales Tax Outsourcing vs. Sales Tax Automation

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So you’re the owner of a small or mid-sized business and you recognize a need for sales tax expertise in your business.  Should you automate the process or outsource the process?

First, sales tax automation is rarely ever fully achieved.  In fact, I’ve never seen it fully achieved.  The goal of sales tax automation is to remove human intervention from the sales tax process.  Don’t get me wrong, much of the sales tax process can be automated including tax rate updates, tax applicability, and tax calculation.  (This assumes the system is configured appropriately and a company’s products/services are mapped correctly into the system’s tax codes.)  But I’ve never seen a system that can make sales tax nexus decisions for a company which are rarely black or white decisions.  There’s considerable “art” in determining sales tax nexus and even after determining sales tax nexus, there are risk-based decisions that a business must make that could lead them to a point of not registering even if they have nexus.  This is just one situation that could never be automated.

Maybe sales tax outsourcing is the answer?  Inside sales tax outsourcing, there needs to be some clarity regarding what exactly is being outsourced.  Is it the return preparation and payment process only?  In this situation, who’s making decisions regarding nexus, taxability, and audit strategy?

Perhaps there’s a third option where you have access to an off-premise sales tax employee that manages all aspects of sales tax including nexus questions, taxability issues, return prep and filing, audits, exemption certificates, etc.  This person does not replace or circumvent the need for technology but provides the sales tax expertise and guidance that many small and mid-sized businesses need yet can’t afford to bring in-house on a full-time basis.

What are your thoughts on sales tax automation vs. sales tax outsourcing?

Other recent “Sales Tax Outsourcing” posts by Robert Dumas:

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1 Responses to Sales Tax Outsourcing vs. Sales Tax Automation

  • Posted by Jim on November 24, 2011 10:32am:

    I think there needs to be a combination of automation and outsourcing. I have outsourced sales tax a number of times over the years and have a not so profound conclusion: this is a service business and if you have a professional with a solid work ethic you receive good service and if you do not then you receive poor service and it can be from the same outsourcing company.


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