What Is Sales Tax Compliance Outsourcing? (SALT)
Ever since the South Dakota v. Wayfair court ruling that you don’t need to have a presence in a state in order to be required to collect taxes on sales there, tax law has never quite been the same. If you need to collect taxes in many states and localities, sales tax compliance is going to be one of the most complicated aspects of running your company. After all, there are over 10,000 individual sales tax jurisdictions in the US alone! Keeping track of them all yourself is impossible.
Most entrepreneurs are not tax experts, but even one mistake on your SALT (sales and local taxes) can lead to incredibly expensive and time-consuming mistakes — and IRS audits. Not only do audits swallow huge amounts of time and money, but they can tarnish the public reputation of your company in ways that are hard to repair. That’s why outsourcing your state sales tax needs to professionals is the right move.
Sales tax compliance software is a popular option to help automate the complicated task of charging, reporting, and filing taxes for sales in different states. However, outsourcing those tasks to a sales tax compliance firm can save you even more money over the long-term.
Once you pick a sales tax compliance firm to work with, both you and a rep from the firm will sign a contract that clearly outlines the terms for services, payment, and other details. Signing on with an outsourced tax firm is like getting an entire tax department for your company for a fraction of the price of hiring tax professionals in-house.
Any company looking to reduce its audit risk and save money on taxes has goods reasons to hire a tax consulting firm. Getting outside help means you won’t need to pay an internal bookkeeper or accounting department to handle your complicated tax obligations, and a full-service tax consultancy will do a lot more than just basic bookkeeping. While you have to make an initial investment, a great tax partner can save you more revenue over the long-term and make your tax process stress-free for every transaction.
Sales tax laws are complex and different in every state, but they’re also ever-changing. Keeping up with the constantly-changing legal landscape is a full-time job, and in-house tax managers can cost you more in the long run than outsourced tax compliance services companies. Outsourcing leaves you with more time for sales, marketing, and product development. Doing it all yourself using a general ledger or calculating by hand is nearly impossible if you sell in many different states and cities.
Time is your most valuable resource, and sales tax compliance tasks are incredibly time-consuming and tedious. From determining taxability to doing individual tax calculations, taking care of your sales tax obligations takes constant time that your company could be spending more productively elsewhere. Even just filing sales tax returns can take days. Hiring a firm streamlines the process and frees you and your employees to work on tasks that focus on growing your company.
Lots of business owners use a sales tax compliance software instead of an outsourced accounting service, but this leaves a lot more room for mistakes. For one, you’re on your own — tech support isn’t always reliable, and you may need help with complex issues like sales tax filing and exemption certificates. Some software also doesn’t reliably update as the tax rate changes in different jurisdictions. Lastly, different software has different features, so there may be a tax function you end up needing that your software can’t handle. A SALT compliance company will have a firm handle on all of these issues.
Perhaps even more importantly, when you work with an outsourced accounting and tax firm you establish a real human relationship that helps keep them accountable. Tax software also still requires you to input data and manage the technology. Outsourced firms let you be completely hands-off so you can spend that valuable extra time growing your business.
With an outsourced firm, your taxes will be consistently accurate. Fewer mistakes throughout the tax compliance process mean you’ll spend less money on fixing them, and have a lower audit risk for your business. Knowing your tax return is accurate gives you huge peace of mind that you won’t be audited.
State and local taxes have different tax filing deadlines than federal taxes, and keeping track of them all is a huge task. If you outsource the job to a specialty firm, you can stop stressing about being investigated by state tax authorities and never have to get bogged down in details like economic nexus laws.
Sales tax compliance software is helpful, but it can only help with the taxes themselves. Professional tax firms have years of experience in all aspects of the field, so they have all kinds of other valuable services for your business. Audit representation, general bookkeeping, help with remittance taxes, helping you get registered to sell in additional jurisdictions, and other tax services like income tax filing to save you even more money and hassle.
Before you start shopping for a tax compliance firm, know your needs. Some questions you should answer include:
What states and cities do you currently sell in?
Where will you do business in the future as your company expands?
Do you need to collect types of indirect tax other than sales tax, such as VAT?
Do you sell online, or will you in the future?
What are your current tax resources? Do you have a CPA, tax software, a tax department, or some combination of those?
What is your budget for handling tax compliance?
Do you have an audit response plan already? If not, are you planning on making one?
Do you do business with tax-exempt organizations?
What kinds of products or services do you sell?
Once you know your specific needs and wants, you can start looking at different companies that seem like a good fit. In addition to the services they offer, compare what they charge versus what you would pay for tax compliance software to get an idea of the value. Also see if you can leverage references to find a good partner, as word-of-mouth reputation is one of the strongest indicators of a great tax compliance firm.
Just like transaction fees, sales taxes are an expense that is attached to every single sale you make. Every fraction of a cent you can save on each sale adds up to a fortune in the long run. Just as a company like Fee Fighters can help you pay less in transaction fees and keep more hard-earned revenue, a great sales tax firm will reduce your costs overall — and directly increase your company’s profits!