Tough Sales Tax Sledding for SMBs

Bernadette Pinamont, vice president of tax research at Vertex, maps out the main features of today’s risk-fraught sales tax terrain in a new E-Commerce Times article. Here are a couple of remarkable stats for starters: The U.S. boasts (if that’s the word) more than 11,000 sales and use tax jurisdictions. There have been more than 6,230 new and changed standard sales tax rates in the last decade.

In addition to tracking these ever-changing rules, SMBs face a host of other knotty challenges, including:

• Exemptions: Most states exempt prosthetic devices, for example, but buyers may need to produce an exemption certificate when purchasing them. Many states exempt groceries, but what exactly falls into that category varies from state to state.
• Product taxability: There’s huge variability in which products get taxed, which may depend on factors such as intended use, date sold, ingredients, and sales tax holidays.
• Nexus and thresholds: The Supreme Court’s Wayfair decision in 2018, which allows states to require remote sellers to collect and remit sales tax, creates new challenges for SMBs. Companies must track sales in each location where they do business and know when they might meet defined thresholds that trigger compliance obligations.

Tax automation solutions provide a way forward for many small and midsize businesses, Bernadette notes. These organizations “don't have the resources and manpower of a tax department supporting a large enterprise,” she points out. “To gain greater control of compliance, SMBs need to automate tax processes.”

The benefits include:

• The ability to handle audits with much less disruption to the business;
• A more seamless shopping experience for customers, especially in e-commerce transactions; and
• An improved ability to understand the tax consequences of every business decision.

The potential to strain small businesses who are forced to track and comply with different sets of sales tax laws for each state is a very real burden, one that in most cases can only be eased with automated tax software.