Q: Our company operates in many states and ships products throughout the United States. Dealing with sales taxes is a significant problem for our organization, as our current accounting system does not meet our sales tax needs. Can you recommend an accounting system that provides a strong sales tax solution?
A: Sales taxes are problematic for any company that ships goods, and your question is common. There are thousands of sales tax jurisdictions in the U.S., and last year alone, there were more than 1,000 rate, spatial boundary, and tax rule changes within those jurisdictions. That high rate of change makes accounting for sales taxes more complicated than accounting for payroll taxes. As examples, the state of Washington taxes the streaming of digital movies and music; Texas holds an annual sales tax holiday when belts with buckles attached can be purchased tax-free, but belt buckles cannot; and Mississippi charges a 3% sales tax on the sale of aircraft equipment but only 1.5% on farm implements, so how much sales tax is owed on the sale of a crop-duster?
The good news is that you do not need to replace your accounting system, because there are many third party add-on sales tax solutions in the marketplace from companies such as ADP (tinyurl.com/6o6mf5e), Avalara (avalara.com), Sales Tax Solutions (salestaxsolutionsinc.com), Tax Data Systems (taxdatasystems.com), and Vertex (tinyurl.com/7ry9rj2).
Avalara, which offers some free products and charges $45 per month and higher for others, integrates with many accounting systems, including the one mentioned in your question. Three Avalara features I find useful are:
1. Pinpoint jurisdictions. Because a single ZIP code can encompass numerous sales tax rates, Avalara's AvaTaxRates.com uses mapping coordinates that allow users to identify the exact sales tax jurisdiction and applicable sales tax rates for each shipment. The image below depicts the AvaTaxRates.com drillable map, which is color-coded by sales tax rates.
2. Single payment sales tax filing. Avalara's AvaTax product enables a company to send a single Automated Clearing House payment to a secured account each sales tax pay period. AvaTax divides and forwards the sales tax to the appropriate jurisdictions, along with the necessary e-file or hard-copy sales tax returns.
3. Integration. Avalara integrates with popular accounting systems such as QuickBooks, Peachtree, Epicor, Microsoft Dynamics GP/NAV/AX/SL, Sage MAS 90/200/500, Sage ERP Accpac, Sage Pro ERP, and more than 100 others. Avalara also integrates with many e-commerce software vendors. These integrations help calculate the correct sales tax during the sales order process so the customer is charged accurately at inception. Additionally, because Avalara is cloud-based, changes in sales tax laws automatically are incorporated into the system throughout the year, lessening the likelihood of sales tax amounts being calculated incorrectly based on antiquated sales tax law information.
Sales taxes are one of more than 20 types of taxes U.S. residents
and businesses may have to pay. To learn more, see "Total Tax
Insights," page 54.