With a new ruling by the Supreme Court regarding online sales tax, businesses should be implementing tax accounting software in conjunction with cloud ERP software. Why? Nancy Manzano of Vertex gives her reasons.
A recent decision by the Supreme Court in the South Dakota v. Wayfair, Inc. case has impacted the way remote sellers collect and remit sales tax. It also made having the right tax accounting software priority number one.
I spoke with Nancy Manzano, director in the Chief Tax Office at Vertex, about the Wayfair ruling. She is well versed on this decision and spoke with me about how businesses, especially SMBs, and the Modern CFO can address these new, more complicated tax management requirements.
6 benefits of of tax automation and cloud ERP software
Simply put, the court ruled in South Dakota v. Wayfair that the dollar amount of sales or number of separate transaction—not a physical presence—creates an economic nexus (nexus being a state’s right to tax a business). South Dakota set their thresholds for sales tax collection based on sales exceeding $100,000 or having at least 200 individual sales transactions in the state per year, but every state can set their own standards. Online retailers must abide by the sales tax rules set by each state that enforce nexus and collect tax accordingly.
“The rules that came about as a result of the Wayfair decision apply to any business. Whether it’s a retailer or a manufacturer, these rules are equally applicable,” Nancy says. “These rules mean that your business could have nexus and the requirement to collect or remit tax in more jurisdictions than you had before.”
In other words, you now have a lot more work to do. As Nancy points out, “You’re going to have more state and local registrations to manage. Obviously, you’ll have to perform more collection activity and more tax returns you’ll have to file every month or quarter depending on how frequently you need to file. You’re probably going to end up with more audits on the back end because you have more jurisdictions involved, and the more places you file, the more place you’ll get audited by.”
She also notes that the Supreme Court’s decision will impact every manufacturing company’s tax exemption certification process. Basically, even if you’re selling to wholesalers and your product is not subject to tax, you may have a filing obligation as most states base it on gross sales, not taxable sales. In addition, “Because you’re registering in and have economic nexus in more jurisdictions, you’re probably going to need to collect a lot more exemption certificates from your buyers, so it’s a greater volume to manage.”
So, how does a business and the Modern CFO manage these new sets of sales tax rules? This is where tax automation with a cloud ERP (which provides the KPIs and reporting needed to make insightful decisions) comes into play. Let’s look at how advanced automation helps with your tax management needs:
Nancy rightly points out that calculating sales tax, remitting it to the now many jurisdictions, and—further in the “life cycle of tax”—during auditing, requires accuracy. “When you increase your accuracy, you’ll get better audit results, you’ll have less assessments, and you’re going to have an overall better process in terms of getting to the right answer. The more you can do that up front, the better.”
Tax accounting software takes care of tax calculations and returns in one system, providing current tax rates, rules, and codes for you. Your accuracy is ensured.
Along with accuracy, tax automation eliminates manual compilation and recording, which speaks to efficiency.
“When you’re more efficient in your processes, it helps drive down your overall costs for your organization, and it can free up resources within the tax group to devote to more value-added activities—things like partnering with the business areas, helping out with new products, and being involved in decision making,” Nancy says.
Being involved in decision making includes the tax group assisting the Modern CFO in disseminating growth-building financial information to non-financial people, thus giving every person in the organization relevant financial information affecting their success.
3. Risk management
According to Nancy, having one-and-done tax accounting software also provides improvement to risk management for your company. “If you’ve got more accurate results, you’re going to put the company at less risk. When you’re not coming up with the right numbers, you subject yourself to penalties and make it difficult to conduct business. That can be problematic.”
4. Business growth
A follow-up benefit of tax automation is being able to support the overall growth of your business. As she mentioned earlier, the tax group frees up their time with financial management software allowing them to redirect their skills in other areas. She says, “Relating to the value-added activities and the business partnering activities, you’re really setting up the business to scale and grow when you have tax automation.”
Tying the financial, R&D, sales, and marketing teams together can provide a fully-rounded product for the customers.
5. Customer satisfaction
Tax automation with the right tax accounting software can also lead to increased customer satisfaction, especially in terms of being able to streamline the transaction process.
“When you’re talking about transaction tax sales and use tax, automation is critical toward achieving that customer satisfaction element. You would never want to lose a customer, for example, because they couldn’t hang on long enough to get a sales tax quote to finish their transaction,” she says. “It [tax automation] helps with overall customer satisfaction.”
6. Tax exemption certification process
Finally, in reference to Nancy’s earlier comment on tax exempt certificates for manufacturing and distribution companies, keeping track of different states’ tax exemption certificate rules and remaining compliant, while also collecting and storing the certificates themselves, is now a much larger and more burdensome process—even for those organizations with some type of system already in place.
“States have varying rules on the taxability of transactions, including varying rules on not just the item itself but on freight charges, installation charges, and repairs. It starts to get a little bit trickier when you’ve got varying approaches to those types of charges across jurisdictions,” Nancy states. “You’re now required to do something you weren’t before.”
Manufacturers buying materials with their own tax exemption certificates will now need to keep track of how their sellers are taxing them; they need to know if it’s being done correctly and confirm they’re not being overcharged by an overzealous seller.
Nancy also says to look out for:
- Things you’ve been paying tax for through the use tax self-assessment process. If the seller starts collecting the tax and you haven’t changed your use tax process, you’ll double pay.
- Registering in different states may put you on the radar for them to investigate whether you have a physical nexus in the state and may audit your business, possibly subjecting to income tax. It’s important to make sure the income tax side of the house knows what you’re doing.
Implement tax automation and cloud ERP software together
Tax automation, combined with a comprehensive cloud ERP system, plays a significant role in how SMBs and the Modern CFO handle the new sales and use tax requirements. Together, they make managing your financial management needs easier, especially in comparison to utilizing unintegrated legacy systems. And the best time to implement them is at the same time.
Nancy explains: “The reason it’s good to do it when you’re planning an ERP implementation or upgrade is that first of all, the tax group should really have a seat at the table when they are going on because you really have to make sure that the processes that are ultimately put in place and will exist after that will provide you with the accuracy and the efficiency you are searching for. This could be with respect to multiple aspects of the ERP, such as purchasing, sales, and then the POS system.”
“It could really be important with respect to multiple pieces of your overall financial system and customer type systems. Aside from making sure you get the results that you want, when you pair up with an overall ERP project, it’s a little easier to get funding, too. When it’s not a stand-alone project, you fall into the ERP upgrade budget and you just kind of tack yours on and it doesn’t cost so much. So, it can really be helpful to do it at that time.”
Choose your tax automation and cloud ERP software wisely
The Supreme Court’s Wayfair ruling has impacted global e-commerce, especially in how online sellers will handle the growing use and sales tax requirements.
“It’s especially significant for the smaller and midsize companies that don’t have automation systems in place to handle it right now. It’s more burdensome for them because they’ve been doing it manually,” Nancy states.
When asked how tax automation makes the new decision easier, Nancy pointed to Vertex’s exemption certificate manager, which helps gather and manage the certificates. For example, if a customer has a transaction, the system will recognize who they are and not charge tax. In addition, the software stores a copy of the certificate, making it easier to produce it during audits.
Vertex, like all Acumatica ISVs (see our ISV Extension Catalog for more information), seamlessly integrates with Acumatica cloud ERP. They offer tax technology and services, automating and integrating tax processes via cloud, on-demand, and on-premise solutions. The depth and breadth of the rates and rules embedded in their products is something Nancy feels sets them apart from other tax accounting software options on the market, along with the fact that they have a “very robust research team that keeps up-to-date on sales tax changes” and a Chief Tax Office.
Whichever tax automation and cloud ERP system you choose, Nancy has some last words of advice: “Make sure it will be able to communicate with all of the necessary financial systems—like I said before, your ERP, your POS system, and other eCommerce systems. You need to have seamless connectivity. You’re going to want to have what we call the “rates and rules” in place; some businesses have a very unique set of rates and rules that apply to them. And you’ll want to make sure the software you choose is going to be able to scale with your business as it grows without significant modification or having to switch to some other system.”