Staying compliant with the ever-changing tax landscape is getting harder if you sell through online channels. A 2018 U.S. Supreme Court ruling recently modified the physical-presence rule and cleared the way for states to begin collecting sales and use taxes from remote sellers that meet certain economic thresholds.
“South Dakota v. Wayfair, Inc. is a generational shift in what the law has been,” said Michael Bernard, chief tax officer for transaction tax at Vertex Inc., a leading provider of tax technology and services. “We had some tax changes in 1967 [National Bellas Hess, Inc. v. Department of Revenue of Illinois], and another in 1992 [Quill Corp v. North Dakota]. But 2018 was a big shift.”
Because tax compliance is becoming more complicated, many leaders are turning to technology to meet the new mandates. Investigating solutions is a good first step, but executives need to maintain a strategic view and look for opportunities to implement functionality that will deliver deeper insights into business fundamentals.
Tax departments need to take the lead
Companies doing business in the U.S. are potentially subject to the tax requirements of more than 12,000 separate jurisdictions. While few organizations are likely to reach the economic threshold in all of those jurisdictions, decision-makers still face a complex challenge as they attempt to devise an affordable and effective strategy.
“What we are seeing now is that each of the states and some localities are coming out with their own statutes,” said Les Jackson, a tax managing director with Deloitte Tax. “In states where we have home rule like Colorado, localities are also saying they want to get a piece of the pie.”
A further complication is that jurisdictions typically enact hundreds of changes each year. Jackson noted this fluid situation is best addressed by encouraging collaboration among key stakeholders, such as finance and IT, but with the tax department using its specialized expertise to guide the overall process.
Tax departments can help educate their peers about how new tax requirements will affect current business operations and resources, for example. They can also help company leaders assess the tax implications of actions such as entering different jurisdictions, establishing or maintaining physical operations, and participating in third-party markets.
Solutions can help manage tax compliance
Regardless of how companies decide to respond to South Dakota v. Wayfair, Inc., it is unlikely that they will be able to ensure compliance without tax technology. Decision makers should not delay making this investment, cautioned Knut Bartel, senior director, SAP globalization services.
“If you are not addressing this issue until you pass the threshold, it is almost too late,” Bartel said. “With today’s volume of tax transactions, it is not feasible to analyze the impact after the fact. Companies need systems that automatically determine the tax implications for each jurisdiction where they do business.”
A variety of solutions and platforms are available to make tax collection, reporting, and remittance accurate and efficient. These offer companies more options for budgeting, implementing, and maintaining new systems or extending existing systems. The tax compliance roadmap can help decision-makers determine whether a cloud, on-premise, or hybrid solution will promote compliance and limit liability.
“Using technology to make sure the invoice is right is a key thing that has to happen,” Bernard said. “If you do not collect the proper tax on the front end, there is almost no opportunity to go back to the customer to ask for that tax.”
An effective roadmap includes actions for using data to link business processes and tax compliance obligations. This information also provides the digital footprint that modern companies need to ensure compliance and improve business performance.
Tax authorities look to technology for enforcement
Jackson advised companies not to think they can continue business as usual and somehow avoid their tax obligations. “Tax authorities are getting more sophisticated from an analysis perspective,” he added. “Some countries outside the U.S. have been at the forefront of this. In the U.S., I expect authorities to start asking for more transactional detail.”
Want to learn more? Listen to this SAP Radio episode, “New Tax Burdens: Can Technology Rescue Your Business?” And check out @SAPradio on Twitter.