SMB Tax Success: Three ‘Gotchas’ to Sidestep

Exemption Certificate Management

For small and midsized businesses, planning for a tax engine implementation is a stellar opportunity not only to optimize their tax processes but also to reinforce risk management.  

Non-compliance usually is the biggest exposure that indirect tax teams must guard against, with its associated risk of fines and other penalties. Negative audit findings can also hinder the customer experience. No company wants to find itself in the position of having to call a customer and say, “We miscalculated the tax due -- can we collect it from you now?” This type of error can rise to the level of a strategic risk if the customer accounts for a large enough revenue slice. 

Tax technology solutions are helpful in meeting challenges like these, and companies are aware of it. In a recent BDO 2023 survey, senior tax executives were asked how their organization is responding to a significant increase in IRS funding. “Upgrading tax technology to reduce errors” was the most common response, cited by 81% of respondents that BDO classifies as tax strategists (i.e., tax professionals with a relatively high level of involvement in strategic decision-making).  

Here are three areas that tend to produce non-compliance “gotchas” for indirect tax teams. You’ll want to watch these closely to mitigate the risks: 

  1. Entering new tax jurisdictions: Tax teams are usually familiar with the compliance requirements of the products and services they sell in their current jurisdictions. But when you’re moving into new geographies, keeping pace with unfamiliar, frequently changing tax rules and rates can be more challenging. 
  2. Managing sales tax exemption certificates: This is a substantial and widespread challenge for SMBs, and one that frequently attracts attention from tax jurisdictions. Auditors often want to look at exemption certificates and scrutinize invoices to ensure the validity and applicability of exemptions that have been issued. 
  3. Business growth: Like nearly every other event in the business lifecycle, growth can generate tax risk. If a tax organization fails to monitor the business changes and the tax registration and determination implications of growth, compliance issues can follow. 

A tax engine for indirect tax can help companies of all sizes reduce the risks that arise from business expansion and sales tax exemptions. Advanced tax technology also helps other compliance challenges the future may hold – from e-invoicing to digital taxes – with confidence. 

For more information, download the Strategies for SMB Indirect Tax Success white paper.

Blog Author

Larry Mellon, Tax Directory, Vertex Inc

Larry Mellon

Tax Director, Chief Tax Office

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Larry Mellon is a Tax Director in the Chief Tax Office, where he is responsible for providing insights, thought leadership and customer-centric direction to Vertex functional groups, supporting the continued expansion of Vertex indirect tax solutions and overall enterprise strategy. He has over 30 years of experience in sales and use tax compliance, risk assessment, jurisdictional audits, administration and management, as well as VAT compliance. Larry joined Vertex in 2005 as a Sales and Income Tax Supervisor and has served as Tax Manager since 2012, where he has played a pivotal role in elevating and advancing the company’s tax management offerings.

Prior to joining Vertex, Larry served as a Senior Tax Accountant and Property Tax Manager at Foamex International, Inc., a polyurethane and advanced polymer foam product manufacturer and marketer. Mellon also held multiple roles at The Franklin Mint and is a member of the Institute of Professionals in Taxation (IPT) and Tax Executives Institute (TEI).

Strategies for SMB Indirect Tax Success

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