How to Automate Sales Tax Compliance

Have you ever considered how much time you spend on sales tax filing and compliance? As a business owner, you're likely juggling numerous responsibilities, and the complex, ever-changing world of sales tax might drain your resources significantly.

Automating your sales tax filing and compliance can not only reduce the time spent on this area of your business but also ensure accuracy and adherence to all relevant regulations. We’ll discuss the benefits and more in the sections below.

What Is Sales Tax Automation?

As an online business, you can easily reach a sales tax nexus threshold through the number of transactions conducted in a state or a specific revenue amount. Every transaction that goes through your storefront requires sales tax calculation to ensure the right amount is charged to the customer.

These calculations tend to be based on your customer’s location, business location, the specific type of goods or services, and the sales price. After collecting sales tax from your customers, you must file and remit it by the due date given to you by each state.

Sales tax automation solutions simplify all of this for you. They can handle sales tax compliance, which typically includes nexus monitoring, filing, and remittance. This can save you time and also avoid errors of handling compliance manually.

How to Automate Your Sales Tax Compliance

Staying sales tax compliant is no easy feat. There are several steps involved in the sales tax compliance process, but using automation software can make it easier. Each of the steps listed below can be automated. Let’s dive in.

1. Sales Tax Nexus Monitoring

Businesses must register to collect state sales tax when they hit a certain threshold, often called economic nexus. These thresholds are usually based on revenue, transaction, or a combination of both. Since sales tax is governed at the state level, these thresholds vary nationwide. There are also local tax jurisdictions that have their own rules as well.

For example, California’s economic nexus threshold is $500,000, while Florida’s is $100,000. In addition, some states, like Georgia, have transaction and revenue limits.

Companies can also have nexus if they have a physical presence in a state. This could include:

• Location: Having an office, warehouse, or other place of business in a state and storing goods in a warehouse.
• Employees: Employees, contractors, salespeople, or any other kind of worker in a state creates physical nexus.
• Events: This can include selling goods or services at a trade show or other event.

Manually monitoring your sales tax nexus thresholds can be time-consuming, especially as your business grows. You not only have to track your sales manually but also research each state’s thresholds and guidance. When you hit a new threshold in a state, you must register immediately to begin collecting taxes. 

Sales tax automation software handles all the work by constantly monitoring the sales you generate in each state. 

2. Registering Your Business

Once you’ve reached a threshold in a state, you’ll need to register for a sales tax permit. Each state has different rules and regulations, and you must register to collect sales tax from your customers.

Since each state has its own forms and processes, manually registering for sales tax permits can take significant time. Many of the best sales tax solutions handle registration when you meet a new nexus threshold.

3. Sales Tax Calculation and Collection

In the US, there are over 13,000 tax jurisdictions, with each state setting its own sales tax rates. However, many local jurisdictions also have sales tax rates at the county, municipal, and district levels. When a customer is in the checkout process, the sales tax rate would include the statewide sales tax rate and any local sales tax rates.

In addition, five states do not have statewide sales tax — Alaska, Delaware, Montana, New Hampshire, and Oregon. Local sales tax may still apply in these states.

You must research each state and local jurisdiction and apply the tax manually. This is why sales tax compliance solutions are beneficial, as they handle everything for you. Charging the incorrect sales tax amount can get you into trouble with the states, often resulting in you paying the difference out of pocket following a sales tax audit.

Further, sales tax rates change constantly. A sales tax engine will automatically apply any changes that happen, whether at the state or local level.

4. Sales Tax Filing and Remittance

After collecting sales tax from your customers, you must file a sales tax return and remit the tax owed to the state or local tax authorities. Each state’s Department of Revenue or tax authority website will have details on how to file along with due dates. Due dates vary by state and the frequency in which you’re required to file may also vary by state.

If you have not filed sales tax during a reporting period, you will likely still need to file a “zero return.” Keep in mind that each state has its own rules regarding filings and remittances, so it’s best to speak with a sales tax expert if you need advice.

How to Find the Right Sales Tax Filing and Compliance Software

Understanding your organization's unique needs and challenges is crucial in finding the best solution to automate your sales tax filing and compliance requirements. Consider your industry-specific requirements, current pain points, and business needs to select an API and integration-friendly solution.

What to Consider With Sales Tax Automation Software

Every industry comes with its own set of unique sales tax rules and regulations, which means you need to consider the following:

Current Business Needs and Pain Points

It's also important to closely examine your organization's unique challenges and needs in sales tax filing and compliance.

Delve into the current pain points in your process. Are you spending too much time and resources on manual data entry? Are errors cropping up due to lack of expertise or oversight? Perhaps the rapidly changing tax laws are overwhelming your team.

Additionally, consider your specific business needs. Does your organization operate in multiple states or countries, thereby dealing with complex, varied tax regulations? Or maybe you're planning to scale up across multiple channels soon, making a more streamlined, automated tax process crucial.

Identifying these issues and requirements is key to finding the best automation solution for your organization.

Selecting an Integration-Friendly Solution

Now that you understand your organization's unique needs and challenges, you can select a sales tax automation solution that addresses these issues and seamlessly integrates with your existing systems and processes. Consider these factors:

 Compatibility:

• Ensure the solution is compatible with your existing software and hardware.
• Check if it supports your current operating system.
• Determine if it's compatible with your accounting and invoicing software.

Scalability:

• Choose a solution that grows with your business.
• Look for features that are built to handle increasing tax complexities.
• Ensure it can handle the workload as your sales volume increases.

Support:

• Opt for a solution backed by excellent customer support.
• Prioritize vendors that offer 24/7 assistance and phone support.
• Consider the availability of training and resources for smooth implementation.

Onboarding of Employees and Stakeholders

After you've selected your sales tax automation solution, you'll need to get your team and key stakeholders on board. They need to understand the features and benefits and how this solution aligns with your organization's needs and challenges.

Hear them out if they have any worries or wrong ideas. Stay patient and really listen to their input – it can be a goldmine for making the system even better.

Incorporation of Existing Workflows

Analyzing your organization's unique needs and challenges, you'll need to ensure that your chosen sales tax automation solution can seamlessly incorporate your existing workflows. This means the system should be able to:

• Integrate with your current business processes - Whether it's inventory management or e-commerce transactions, the software should align with your already established systems.
• Accommodate your specific tax requirements - From local to international taxes, the solution should be able to handle your unique tax challenges and obligations.
• Offer scalability for future growth - As your business expands, the software should adapt to accommodate increasing transactions and evolving tax laws.

Case Study on Automated Sales Tax Filing and Compliance

Let's examine a specific case study that demonstrates the effectiveness of automating sales tax filing and compliance. 

Founded in 2022, Little Hunter revolutionized dog food with freeze-dried kibble that combines the nutritional value of raw diets with the ease of traditional kibble. The company took off and quickly faced the challenge of navigating complex, multi-state sales tax compliance. 

Little Hunter’s first sales tax registration was time-consuming and required expert advice, proving to be a costly and intricate process. This changed when CEO Annie Wasserman discovered Zamp.

“I can put sales tax on autopilot. I don't have to think about it. And if I do, Zamp is like a friendly reminder. You do it in a way where I'm not freaking out because it's too late, but it's a preemptive kind of thing. It’s peace of mind about everything sales tax-related.” — Annie Wasserman, CEO

Zamp's sales tax software gave Little Hunter's founder time to focus on business growth without worrying about sales tax regulations. In just six months, they accomplished accurate filings in 18 states, completed 15 state registrations, and configured accounts in 18 states, all while scaling their business.

Want to know how other companies have automated sales tax filing and compliance? Check it out here.

Automating Sales Tax Filing and Compliance: Conclusion

Automated sales tax filing and compliance has redefined the cumbersome process of preparing and filing sales tax returns into a streamlined and efficient operation, tailored to meet the specific needs of an organization. Don't let the opportunity to transform your sales tax filing process pass you by. Embrace the change that automated sales tax compliance brings, and turn a routine task into a strategic asset for your business. 

To see firsthand how our software can revolutionize your approach to sales tax, we invite you to book a call. Let's work together to take your business efficiency to the next level!