To put this situation into context, the pandemic and resulting accelerated digitization of commerce across both traditional and emerging channels has caused a lot of friction for IT teams. The number of sales channels that retailers can sell on is astonishing and that exposes new challenges that can adversely affect the customer experience.
This has put a lot of stress on IT professionals to account for all these areas of friction. One area that is often missed—and yet is critical to business operations—is tax calculation. Put more simply, as commerce continues to become more globalized, companies will be expected to follow an increasing number of local tax rules across more and more jurisdictions.
Economic factors also play a role in this increased complexity. During adverse economic cycles, sales taxes, referred to as Indirect Taxes, tend to provide a more consistent method of funding compared to income taxes. Because of this, some states are considering reducing or supplementing their income taxes, referred to as Direct Tax with broad sales taxes. If those measures are made law, sales taxes would become an even more significant source of revenue for these states—and a significant source of headaches for businesses trying to comply.
Tax compliance challenges stemming from this explosion of sales channels aren’t always garden-variety sales tax hikes. From new environmental fees like the recent Colorado Delivery Fee to product-specific taxes on goods delivered electronically, organizations that rely on heavily manual business processes will not be able to keep up. As a result, tax departments are looking to their IT counterparts to help find a solution.
One way to tackle this challenge, be scalable for future growth and also be agile enough to weather the next disruptor, is to automate. Beyond that, IT teams should be looking for an automated solution that is function specific. For example, working with a technology partner that specializes in implementing tax compliance solutions. These kinds of partners bring an inside knowledge of the tax space and can provide mission-driven best practices for that particular function.
With all these new opportunities to sell through channels unheard of even a decade ago come a greater risk of noncompliance. Manual processes aren’t scalable enough to keep track of sales tax changes, let alone understand when, where and how a transaction should be taxed. That’s why IT departments with the know how to implement leading edge technology have become so vital to tax teams. It’s time to tear down the silos and work together to make sure transaction tax compliance is a priority up and down the supply chain.
Peter Olanday, director of consulting for vertical solutions at Vertex, Inc.