What Is Sales Tax Software?
Sales tax software refers to programs and online platforms that help businesses calculate their sales tax, issue reports, and file returns. There are thousands of different sales tax rates in the U.S. alone, and international sellers have even more to consider. The seller will need to pay the correct rate, which depends on the product and the location of the buyer.
Many locations have varying thresholds for when to pay sales tax, and once triggered, those will set different deadlines for payment. Sales tax software keeps track of obligations when sales are nearing a threshold and has alerts or automated processing for the different deadlines.
Automating the process makes it faster to reconcile, check exemptions, and calculate taxes. Since the software typically tracks transactions and files returns too, it creates an opportunity to get an overview of compliance. This report can be used as an audit trail if there’s an investigation from the tax authorities. The reputation of the research tools used in the software can help any defense required in those situations.
The right sales tax software will require some setup to cover the products and areas where you sell. The majority will offer research tools that give you the information you need about rates and requirements, which you can apply to invoices. Many integrate with your e-commerce platform, so you can apply it to sales as customers check out.
Once you’ve added the necessary inputs, your sales tax won’t require too much maintenance. For cloud platforms, that’s especially valid, as the system will automatically update any changes or new requirements.
Benefits of Sales Tax Software
No matter the size of your company, small businesses, accountancy firms, and global enterprises can benefit. Sales tax software has several advantages that will assist you with tax compliance:
- Meeting your deadlines: Most platforms have an alert system or automated processing. You’ll be able to keep track of deadlines from the dashboard and schedule returns to file them on time. This could save you money on penalties or help you out with tax deductions, as you’re always paying the updated rate.
- Simplifying tasks: Sales tax tasks are complicated and could keep an accounting team busy for hours. Instead of repeating complex tasks like researching rates, filling in forms, or calculating and reconciling, your team can simply monitor the results.
- Saves time: When a task is made easier, it often means it’ll also take less time. That’s certainly the case with using sales tax software. Hours of work can be completed in minutes, which means your finance department or accounting firm will have more time to spend on other tasks or communicating with clients. Saving time saves money, improves morale, and makes your business more effective in key areas.
- Accurate filing: With potentially thousands of jurisdictions to keep track of, it’s a challenge to apply new changes and exemptions. Since sales tax software updates the rules and rates regularly, you’ll know your returns are accurate and ready for an audit if necessary.
- Compliance: Manual filing leaves a lot of room for error. That could mean missing a deadline, not spotting a new obligation because a threshold has been reached, or having difficulty making accurate calculations. Sales tax software tracks transactions and generates detailed reports. You’ll know what was filed and how much was paid and when, thereby keeping your company compliant.
Must-Have Features of Sales Tax Software
When looking for the best sales tax software in 2021, there are a few essential features you need to evaluate:
- Automatic application of tax rates: Most systems will include a database of certain sales tax rates, which can be applied automatically when particular conditions are met. Make sure you find out which jurisdictions the software covers and whether it has the appropriate regulations for your products.
- Tax returns: Calculating and charging your customers sales tax is the first step. The second part is compliance with tax laws and filing returns by the required deadline. Check whether your software helps you compile the returns or if it offers e-filing options too.
- Exemption certificate management: This is especially vital if you face an audit. Keeping track of any exemptions from customers, including storing them and knowing when they expire, is a pivotal part of tax compliance. Your software should provide alerts and collect your certificates to make this easy for you.
- Detailed reports: No matter how much you trust your software, you’ll still want to be able to check and prove that sales tax has been applied appropriately. As well as summaries of transactions and returns, the platform should give you in-depth reports.
- Integration and customization: Whether it’s through API or built-in integrations, your sales tax software should work with your existing systems. If you use a particular e-commerce platform, then finding one that communicates with it is essential to smooth operation and easy tax application.
As you’ll have gathered from the information above, there are various price points for this software. Some give you free access through state compensation schemes, others might be pay per usage, while many have a monthly subscription fee. However, each pricing plan will give you a different level of access to the features.
It can be somewhat trickier to understand the cost of sales tax software, as many companies only provide the prices and plans after a consultation. On top of that, there are numerous add-ons and multi-system platforms that give you additional features and tools for other types of tax calculation and processing. In that case, a higher monthly fee might get you more benefits.
The ideal way to know if a program meets your needs while you discuss prices is to take advantage of a free demo or trial. Once you know how much time and effort it’ll save, you’ll know its true value. From our list, you can see that prices start as low as $19.99 per month and can rise to as high as $1,900 annually.
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