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5 reasons software companies automate sales tax


When you delve into sales tax compliance for your software company, the questions come easy. Which states tax digital goods and services; which don’t? At what rate? For what customers?

The answers are harder, much harder. Oftentimes, the steps to take to get compliant just aren’t clear, which is partly why software companies employ sales tax software: to automate and simplify the complex compliance process.

Let’s take a closer look at five reasons growing software companies rely on tax software to help take the compliance work — and worries — off their hands.

1. Run lean — You can accomplish a lot with limited resources when you work smart, and replacing manual processes with automated operations is exactly that: smart. When you replace manual sales tax processes with automated sales tax workflows, you free up staff otherwise bogged down by the complexities of compliance. The last thing you want is to dedicate costly resources, such as time and people, to tasks that don’t contribute to your profitability.

2. Address risk — And why dedicate staff to the task when the risk of error is so high? It’s easy for something to go wrong when your tax compliance relies on people having to track down rate and rule changes from this website or that announcement, identify which ones apply to your products and services, and sync your ERP, POS, or ecommerce system with the updates. Put a decimal point in the wrong place or add an extra number to the end of a rate, and you have trouble on your hands. Tax software makes for a much smoother and accurate process that helps minimize the risk of simple human error.

3. Stop chasing rates — Those rule and rate changes mentioned above? They happen constantly, and the more states where you have sales tax responsibilities, the more changes you have to track. By the time you update rates in one state, another state announces changes for you to address. It’s an endless loop, and a frustrating one. With tax software that’s continually updated to reflect the latest rules and rates, you don’t have to worry about missing a change that affects you. Your existing systems (ERP, POS, ecommerce, etc.) have direct access to the data that helps you stay compliant.

4. Calculate sales tax instantly — In the 2017 Avalara Sales Tax Survey for Software Companies, software leaders expressed the need for a reliable tax solution that instantly applies the right sales tax rates and rules to the sale of digital goods and services. That’s what tax software is designed to do: pull together sourcing rules, product taxability regulations, and state and local rates for an instant calculation with no interruptions to or lags in the purchase process.

5. Be audit-ready — With various aspects of your sales tax compliance centralized in the cloud, you’re ready for any surprises ahead, even an audit. The most successful way to navigate one of those is to have meticulous records you can access quickly. Also problematic: churn. But, with cloud-based compliance, you won’t be left in a frantic search for tax documents just because someone is no longer with the company. Centralized reporting is also convenient in the event of a valuation, merger, or in-depth business review.

You automate in other areas of your company. Why not sales tax compliance? Tax software allows you to transform an error-prone, resource-heavy task into a more accurate, efficient process using technology that integrates seamlessly with the other tech you already use.

To further explore how to more effectively automate and operationalize your sales tax compliance process, download Operationalizing Your Sales Tax Strategy (Part 2 of The Software Executive’s Guide to Sales Tax) now.


Avalara Author
John Sallese
Avalara Author John Sallese
John Sallese has more than 24 years of tax compliance and audit experience. Before Avalara he worked at a Big 4 accounting firm, with other tax software providers, and in industries ranging from ecommerce and technology to manufacturing and telecommunications. Avalara helps businesses of all sizes achieve compliance with transaction taxes — including leading software companies such as NetSuite, Marketo, Webtrends, WatchGuard, SugarCRM, Ubisoft, Support.com, and more.