Knowing how to properly collect sales taxes in different states and jurisdictions is incredibly complicated. Different tax jurisdictions have different laws and rates, but accountants and tax lawyers are expensive. Worse yet, a tax mistake due to ignorance of sales tax law can lead to an audit or penalty that will cost your business a fortune.
Thankfully, tax compliance software simplifies the entire process and prevents costly tax mistakes – but with so many options in the $8 million tax software market, figuring out which app is the best fit can take hours of research. That’s why we tested a dozen of the top tax compliance software providers.
What is Tax Compliance Software?
Put simply, tax compliance software automates the process of tax calculation, charging, and filing so you don’t have to know the sales tax rate in all the jurisdictions where you sell. It is like an all-in-one accounting department that takes the hassle out of collecting and filing sales taxes.
Tax Software Integrations
When you’re researching different options, integrations are a key feature to look out for. Whatever software you pick for sales tax automation, you need to make sure it can be seamlessly integrated into your existing systems (like your payment processor and accounting software).
Features & Capabilities
The tax compliance software features you need will differ depending on your business. That said, here are some common features that all e-commerce companies like yours will need:
Location detection features ensure every transaction is taxed accurately based on local and state sales tax laws. Without this feature, tax calculation for different regions is impossible.
- Tax Exemption & Holiday Automation:
Your sales tax software should be able to automatically handle situations involving tax exemption certificates and tax holidays for different jurisdictions.
- Tax Return Filing:
Software should automate your sales tax return process, and allow you to track your tax return’s progress once it’s sent.
- Tax Data Analytics:
Tax analytics data gives you a snapshot into key metrics like how much tax you have collected over the course of the year, jurisdictions that charge the most tax, and other information to help you make the right decisions.
Tax Compliance Software Benefits
- Automatic Application of Tax Rates
With software to do all the work for you and that updates whenever the laws change, tax rates can be applied automatically without you having to know the tax rules in each state. This reduces mistakes and helps prevent costly audits.
- Automate Sales Tax Returns
In addition to calculating and collecting taxes, tax software can also automate your sales tax return filing. At the end of each tax year, your software can do all your sales tax return processing essentially with the touch of a button. Automating these processes saves you a ton of time and money.
- Tax Exemption Certificate Management
Tax exemption certificates can make collecting tax much more complicated. One example of when exemptions apply is a situation where you do business with churches or non-profits – these are ripe for audits, so it’s important to get them right.
Sales Tax Software: How to choose the right solution
Aside from knowing what software your e-commerce company already uses, the biggest factor for how to choose sales tax compliance software is what products or services you sell. Different companies have different tax obligations, so the final tax determination will be different depending on what product or service you sell. For example, food is often taxed differently than beauty products. Determine your primary product or service category, and then look for software solutions that service those verticals.
The right sales tax software reduces time and increases efficiency by reducing mistakes in collecting, reporting, and filing. It also massively reduces your audit risk, because your software will take care of every detail (without making mistakes). You won’t ever have to do your taxes by hand again!
Best Sales Tax Compliance Software Comparison (Pros, Cons, & Pricing)
Avalara Returns is a sales tax compliance automation system that does a great job of keeping information like local tax rates and law changes up to date (Sage Sales Tax is another product from Avalara that automates sales tax collection by integrating with your existing ERP or Enterprise Resource Planning). Avalara covers all tax types, no matter where or what you sell. It manages tax exemptions seamlessly. It also has powerful filing tools, and updates tax rates automatically as laws change.
Some of Avalara’s integrations pose challenges. Amazon-based businesses sometimes have trouble getting it to work right, and customer support can be slow to respond.
It is one of the pricier options out there. While for the most part, it is powerful enough to justify the cost, I’d expect more reliable customer support for such a high-end product.
Vertex’s cloud-based software allows for a ton of flexibility, so you can customize it according to what kind of company you have. It also can look at your taxability to estimate taxes over different time periods, and does tax calculations in real-time to give you an accurate picture and keep tax filing accurate. All aspects of ERP are automated, so you don’t have to hire extra hands to manage tax compliance issues.
Reports could be more detailed, and certain features aren’t especially user-friendly. A “test transaction” option, for example, is really difficult to use. Customer support is also not good, so if you need help you may be frustrated by their poor communication.
Vertex works well, but other services work just as well and charge less. They also charge extra for phone support, which is crazy – this should be a standard part of their product and be included with the cost.
Sovos Intelligent Compliance Cloud is solid tax compliance software, with audit-friendly reports that keep you prepared for a potential audit at all times. These reports can be categorized based on product, tax jurisdiction, or other combinations of factors to keep you ready. Audits are expensive and stressful, so the powerful reporting tools go a long way toward providing peace of mind. Exemption certificate management is also a breeze. The customer support is usually quite responsive and very helpful, which makes all the difference when you get stuck.
Sovos is not well-designed from a user experience perspective. It’s harder to use than most tax software because of its clunky interface.
Sovos is a good value with competitive pricing, solid support, and the powerful features you need for e-commerce tax filing.
Taxify (owned by Sovos) is a sales tax solution that makes tracking and fulfilling your tax obligations easy (no matter the size of your company). It is configured to automate the process for all types of transactional taxes – even in situations involving use tax, changing local tax laws, and different economic nexus regulations. Its automated form filing makes tax day stress-free. Plus, it offers a free trial so you can make sure it’s the right fit.
The interface is confusing, and customer support reps don’t respond quickly to questions. Other options have the same features but are easier to use without as much digging around various screens and menus in the interface.
At under $50 per month, Taxify’s pricing is competitive with other providers but might be pricey for freelancers or very small business owners. Pricing aside, you may find its cumbersome user interface to be difficult to navigate, and better customer support would drastically increase its value. For midsize and large companies, however, Taxify delivers great functionality and flexibility for the price.
TaxJar’s user interface is super intuitive, making it easy to use even for new business owners. It is full-featured, automating your tax determination with solidly reliable calculation, payment, filing, and analytics tools.
While it is improving in this area, TaxJar doesn’t integrate as reliably as some higher-priced options. They also only have email-based support, and its Autofile tax filing system is too expensive to make economic sense for any but large-sized companies.
TaxJar is a great value, with all the features you need to sell in multiple regions at a lower price than most competition. However, it would be nice if its Autofile system cost a little bit less per state.
Canopy is a little bit different than the other apps on this list, as it is software designed specifically for accounting firms. It has great workflow and process control tools that let you manage processes, assign tasks to different team members, organize files and documents, and send requests to clients. Its invoicing and time clock functions make it easy to record work and bill clients.
Canopy has a lot of problems with its cloud-based tax transcript system. It frequently goes offline, causing errors while saving and sending. Integrating with certain brands of tax preparation software can also cause technical problems, though Canopy also offers its own professional tax prep software as well.
Canopy has different subscription tiers depending on the features you need. It’s not cheap but has more powerful features than competitors like Zoho, which provide more basic CRM functions. It does have a free trial that allows you to store data for 20 clients, and lets you try all of its client management tools before you commit to buy. SAP Tax Compliance is another solution with even more comprehensive tools but comes at a higher price.
Bloomberg Tax & Accounting easily accounts for indirect tax (such as VAT, which is only charged in some jurisdictions), and other complicated details like sales tax nexus and use tax calculations. It’s extremely powerful and accurate, streamlining tedious data entry processes that can often result in errors – and lead to audits. In the event you are audited, its system creates easy-to-follow audit trails so that they take up as little as your time and money as possible.
Bloomberg Tax is one of the more expensive providers on this list, and it’s specifically designed for larger companies. That said, mid-size e-commerce companies can still use it.
For the cost, you get some of the most powerful tools in the industry. Mid-size companies may want to look elsewhere, but pricing is reasonable for large companies that need all the latest tools.
CSC Corptax Compliant
CSC Corptax is a really robust solution, with all the features you need for sales tax planning and filing (including support for calculating indirect tax). You can file returns right within the software, so there’s no need to pay for a separate tax filing solution. It also has a free trial, so you can see if it’s a good fit for your company without signing a contract.
CSC Corptax is a solution for medium and large enterprises only – it’s not a good fit for small companies or brand new start-ups.
The pricing is quote-based, so depending on your individual needs you’re going to get a different price. If your company has outgrown its current sales tax compliance software, CSC Corptax is a great upgrade.
Thomson Reuters ONESOURCE
Thomson Reuters ONESOURCE is a powerful piece of software that can do it all. The support staff is very helpful, which comes in handy with software as complicated as this. It also integrates easily with all of the best apps for credit card processing, so it is very likely to work with the software your business already uses.
The strength of ONESOURCE is that it’s powerful enough to do whatever you need it to do. However, trying to be everything to everyone means that the user interface tends to be cluttered and difficult to navigate. Options are sometimes hard to find, and on-boarding takes a lot of time.
ONESOURCE is a total solution, and its powerful features don’t come cheap. However, considering everything it can do, it’s still a good value if you make the most of what it offers.
CCH SureTax is powerful, containing all the functions of a tax department conveniently in one place. It releases frequent updates to stay up to date with changing laws, and includes solutions for complicated scenarios like indirect tax and use tax. Since laws are always in flux, software that stays up to date with new tax laws is critical. CCH SureTax also has a great system for detecting and fixing tax errors automatically, reducing your audit risk.
The reporting system is difficult to use and doesn’t offer the same breadth of data as other providers. It’s also difficult to use, with a higher learning curve than some of its competition.
CCH Suretax is a good value – for the features it offers, you’ll end up saving money on accounting by removing the need for in-house accounting reps and external tax help.
Increase Revenue With Sales Tax Compliance Software
Powerful sales tax compliance software will help you increase revenue for the life of your company. First, by assuming the functions of a human accountant, you can save huge amounts of money on payroll. The automation of tasks and processes also saves human resources, while massively reducing expensive tax mistakes due to data entry errors. Most importantly, it makes sure your taxes get done correctly the first time, preventing expensive and time-consuming tax audits that could spell doom for your business.
Every sale you make comes with costs, from overhead and taxes to payment processing fees. Let FeeFighters supplement your tax compliance software to save you money on fees for each and every sale, and watch your revenue grow!