State and local sales taxes have become an increasingly difficult area for small businesses to manage efficiently. With jurisdictions across the country encountering revenue shortfalls due to the recession and the slow recovery, government units are collecting, enforcing and auditing sales taxes much more diligently than has been the case in the past.

Some key issues with sales taxes are:

1. There are over 11,000 distinct tax jurisdictions in North America.
2. There are over 100,000 distinct taxability rules.
3. There are 1,000’s of changes to tax formulas and rules each year.
4. There are exempt products, exempt organizations and special “tax holidays” to factor in, which vary by jurisdiction.
5. State-provided tax bulletins and related information is often missing, misleading or incorrect.
6. There are many new E-commerce rules in response to the massive shift to Internet purchasing practices.

As states try to raise revenues, the chances of getting selected for tax audit are 22%, with the average penalty currently at $34,000 per audit.

The challenges of sales tax compliance are:

1. Sales tax is a statutory requirement, which means that audits will happen, and they almost always result in back taxes and penalties.
2. Manual sales tax management is labor intensive and expensive.
3. Compliance is 100% a non-revenue generating activity (for the business, anyway!).

The sales tax “pain” involves:

1. Research and maintenance of sales tax rates.
2. Taxability rules for products and services, and administering exemption tracking.
3.  Tax return preparation, remittance and payment.

So what’s the answer? We are strongly recommending automated sales tax compliance software for any small business dealing with multiple sales jurisdictions, or performing a significant volume of Internet sales. Avalara is a Silver Level Sage Development Partner, and through their AvaTax software application has developed integrations with hundreds of accounting software products, including Peachtree / Sage 50 and most oth Sage accounting products. For more information about Avalara and their products, click this link.

If you have questions or concerns about your unique sales tax tracking and compliance needs, give us a call at 610-941-2116 to learn how we might be able to help.