Part 3 of “Streamlined Sales Tax: From Registration to Maintenance”
This is the third post in a multi-post series. In the first post (“Is Streamlined Sales Tax Right for Your Business” ) blogger Cory Barwick (of CCH) boils it down to three key factors which a company needs to review if they are considering Streamlined Sales Tax for their business. In the second post of the series (“Okay, SST is for me… Now what? The SST Registration Process”) we explored the ins and outs of the SST registration process itself and selecting your technology partner.
Congratulations! You are now an SST registrant and are ready to begin collecting and remitting sales and use taxes in SST Full, and possibly Associate, member states. Your technology partner will play a very key role in this process and will become vital to your sales tax collection so let’s get to know the services that they provide to SST registrants.
Sales and Use Tax Made Simple
Your technology partner will help to simplify your sales tax collection by entering in an agreement with your business to provide a software solution (either on-premise or hosted in the cloud) that will calculate sales tax due on invoices created by your accounting system in real time.
Most of these applications replace the basic sales tax rules that are built into accounting packages with a more robust and accurate tax calculation. The partner will maintain all rates and taxability rules for you so that you never have to worry about a rate change notice again, nor will you have to waste your valuable time reviewing the ever changing world of sales tax law and the implications of those changes to the taxability of your products or services.
Make Contact with your Partner (& Don't Forget About The 30 Day Window)
As soon as you click the submit button on your SST registration, you enter into a very critical 30 day window: by SST guidelines, you have 30 days from the time that you register with SST to contract with your technology partner to begin collecting and remitting sales tax, so start by contacting a member of your chosen partner’s sales and / or SST team.
As a general rule of thumb, the software vendors that are providing certified services to SST registrants have a designated individual, or group of individuals, handling their SST processes. If you cannot locate the correct SST contact with the vendor that you will be working with, reach out to their sales team and they can connect you with the correct person and get the ball rolling to get you setup in their system.
Note that SST will notify the vendor that you select during the registration process to provide services to your business as well, so your technology partner may reach out to you directly.
On these first calls that you will be having with your technology partner, you will need a couple of important pieces information about your business operations so that your partner can structure the service contract with you in a manner that complies with SST guidelines.
Get Prepared … Again
In our last installment, we walked through what you will need to complete your online registration with SST (for more information, please see “Okay, SST is for me… Now what? The SST Registration Process”). Likewise, there are certain pieces of information that your technology partner will need to know while putting together your services agreement with them.
Mandatory vs. Voluntary
One of the most important pieces of information that you will need to provide your technology partner is a comprehensive list of the SST states where your business is a mandatory filer versus where your business is a voluntary filer. Why? Put simply, SST will compensate your technology partner directly for some of the services that they will provide you in SST states where you are voluntarily registered. Conversely, your technology partner will work with you to come to an agreeable price that you will pay for the services rendered for states where your business is a mandatory filer.
Per SST guidelines, a technology partner is compensated directly by the state governments for any Simplified Electronic Return (“SER”) that they file on your behalf in states where your business is a voluntary filer. Alternatively, your technology partner may charge you a fee to file SERs in those states where your business is a mandatory filer. Remember that your technology partner is required by SST guidelines to remit all SER filings on your behalf so you may end up with service agreement where the CSP is compensated for some of your filings by the states and you pay a fee for the remainder of the filings where they will not be compensated.
One other area where your registration status is critical to your technology partner is in determining the amount of transactions processed by the partner’s system that they will be allowed to bill you for.
Per SST guidelines, a CSP may not charge a fee for processing non-taxable transactions unless the total amount of non-taxable transactions processed exceeds 30% (50% depending on the contract year the vendor is in with SST) of the total volume of transactions processed in all SST states. Confused? Let’s look at an example:
Say your company processes 1,000 SST transactions a year and you have selected a technology partner that is working under the 30% ratio provided by SST. Out of those 1,000, only 200 are non-taxable. Under SST guidelines, your technology partner will charge you a fee for the 800 taxable transactions that they process for you but they cannot charge you a fee for the remaining 200 non-taxable transactions.
Alternatively, if you are processing 600 non-taxable transactions out of the 1,000, your technology partner may charge you a fee for all transactions processed by their system.
It is important that you clearly communicate your non-taxable transaction volume to your technology partner when you contract with them - even if you have to estimate that amount. SST guidelines do allow for year one registrants to make a reasonable estimate of the amount of non-taxable transactions to be processed in order to assist the CSP in putting together the service agreement for you.
Finally, note that your technology partner will require that you make these statements in writing to them in order to comply with SST guidelines so be prepared to sign or draft a document that will detail where your business is voluntary or mandatory, as well as estimating the total amount of non-taxable transactions that will be processed by your partner in year one.
What are you selling?
While not directly related to the prices that you will pay technology partner, you will need to know about what you are selling in order for your partner to structure the more legal aspects of who bears what risk for tax decisions under audit.
Your technology partner will work with you to map your standard set of item numbers or SKUs to the tax matrix that they maintain for SST purposes. It might help for you to review the SST defined items by reviewing Appendix E – Testing Process for CSP on the SST website. The list of pre-defined SST SKUs begins on page 14 of this document and is standard for all technology partners certified under the agreement.
SST has worked hard to implement this standard group of items and, in general, have left the definition of those items broad enough to capture most products being sold. By selecting a pre-defined SST SKU that most closely aligns to the products that you are selling, you and your technology partner will receive the most protection under audit for a tax decision that was incorrect due to state error in updating their taxability matrix. Your technology partner is consistently notified by SST when the rules for these items changes so you will be assured that you are receiving the most recent information applicable to your business.
If for any reason you are unable to map your products to a pre-defined SST SKU, don’t worry. Your technology partner will work with you to select a different SKU that will be used for tax decisions for your products. By using a non-SST SKU, your partner may not be able to guarantee that the taxability decision being made for the products that you select will be upheld under audit and may force you to bear that risk should an audit assessment arise.
Similarly, your technology partner will work with you to map the items to corresponding SKUs for non-SST states as well. Since SST items are generally broad definitions by nature, your technology partner may not have a corresponding SKU for you to use in non-SST states and may require that you select a more detailed SKU in their tax matrix if they are processing non-SST transactions for you.
At this point, you are pretty much ready to contract with your technology partner. We have talked about the items that you need to consider from a business perspective leading up to contracting with your technology partner and we have reviewed 2 of the most critical items that you will need to provide your technology partner when you setting up your service agreement.
In the next installment, we will look more closely at how your technology partner will work with your accounting package to process sales tax in real time on your invoices including some things that you will want to consider about your accounting package leading up to your integration into your partner’s application.
BTW - In addition to our SST blog posts - don't forget to check these other Streamlined Sales Tax (SST) resource pages on SalesTaxSupport.com:
Other recent “Streamlined Sales Tax (SST)” posts by Cory Barwick:
- Ohio SST Membership Nod: A Very Tasty Carrot Indeed!
- Streamlined Sales Tax: Will Ohio Go For $20 Million Carrot?
- Dear Streamlined Sales Tax… Where Have You Been?
- Oregon Sales Tax? Say it ain't so!
- Hey Maine! Ready to Simplify Sales Tax?