Had it not been for Toto finding “that man behind the curtain,” Dorothy and her companions would have left Oz without satisfactory resolutions to their problems. They needed to peer behind the curtain to fully appreciate the wizard and his insights. Turning your information over to a sales tax management solution without first considering the sales tax content behind it would be similarly ineffective. While the right automated solution can make sales tax management seem as simple as following a yellow brick road, getting correct sales tax answers depend on access to timely, accurate information. From a user’s perspective, a transaction is entered and the right rate magically appears. From the solution provider’s perspective, however, every correct answer requires a wealth of activity and investment. Behind the curtain, there are regulatory changes to keep up with, jurisdictional boundaries to navigate, state tax matrices to absorb, not to mention rate changes, form updates, and new filing requirements. In today’s world, it takes a good bit of wizardry to reliably provide the right answers, so make sure you know the sources behind your sales tax solution.
Sales tax software is only as good as the sales tax content behind it. Top software providers depend on content experts to keep their sales tax solutions accurate. These experts and their teams of researchers tune in to regulatory authorities in every state, as well as every jurisdiction within those states. They monitor rule and rate changes and keep up with form updates and changes in filing requirements. For these experts and the solutions that depend on them, the stakes are high when, for example, the same donut that is fully taxable as a “prepared food” today could be a tax-free “eat-at-home” food item tomorrow.
What is Sales Tax Content?
Sales tax content is the key to determining the correct amount of tax to assess, collect, and remit. There are two critical steps to defining sales tax content: First, you need to determine if there is any tax due. Then, in order to determine the correct rate of tax to pay on any transaction, you need to stay current on constantly changing rules. Sounds simple, but it’s not (that’s why the content providers are called “experts”). Consider this: In each of the 46 states with sales tax, there are unique rules and exemptions. The special treatment may be based on certain elements of a given transaction, including:
Type of seller. Foreign and state governments are exempt from charging sales tax in certain states.
Type of buyer. Sales to the U.S. Government and certain non-profit organizations are exempt in many states.
Place of purchase for retail sales. For retail sales, the tax rate depends on the tax jurisdiction containing the retail store.
Tangible versus intangible goods. Tangible items are generally subject to sales tax in most states, but intangible items like digital goods can also be subject to tax. Some states exempt food items from tax.
Origin or destination rules. Tax rates can depend on the ship to or the ship from address – including the state and other jurisdictional boundaries.
Product versus services. Some states exclude services from taxation, while others subject certain services to sales tax.
Food – consumed at home or on premise? Many states exempt most food purchased for consumption at home from the state sales tax.
Authoritative information that explains exactly how to apply each of the sales tax rules and exceptions in each state can come from a number of sources including:
State and local tax bulletins
Content providers must regularly monitor proposed and final law changes that impact filing requirements, exemptions, taxability, forms and rates. It is the content providers and their teams of researchers who make it possible for sales tax management companies to stay current on each state’s changing rules, rates, and jurisdictional boundaries.
Behind the Curtain
Let’s take a look at some of the top sources of reliable information available to guide sales tax solution providers across the United States.
Streamlined Sales Tax Website
The Streamlined Sales Tax Governing Board is an organization composed of representatives from a number of states that have taken on quite a challenge. According to its website, www.streamlinedsalestax.org, the goal of this organization is “to assist states as they administer simpler and more uniform sales and use tax system.” Although it might not have solved the simplicity problem just yet, the organization has certainly helped make sales tax information more accessible through the information provided on its website. The website is a free resource available to anyone trying to keep current with changes in individual states. The website offers not only the latest taxability matrices for each state, but it also provides a resource for those tracking uniform streamlining activities. Each state’s taxability matrix holds the key to determining if an item is taxable or not, and if taxable, at what rate. Here is an example of one section of the Arkansas taxability matrix available on the SST website:
By glancing at the matrix, you can tell which drugs are taxable (non-prescription) and which items are exempt (prescription drugs) for sales tax purposes.
The organization currently counts among its members 24 states that have signed the Streamlined Sales and Use Tax Agreement. By signing the agreement, member states agree to adhere to a standard Library of Definitions that apply to sales taxes in their state. Signing members must also agree to offer the following protection to vendors relying on the website for sales tax information:
Sellers and certified service providers are relieved from tax liability to the member state and its local jurisdictions for having charged and collected the incorrect amount and sales and use tax resulting from the seller or certified service provider relying on erroneous data provided by the member state relative to treatment of the terms defined in the Library of Definitions.
By providing a central clearing house for sales tax information and bringing together member states, content providers like StreamlinedSalesTax.org give tax solution providers some of the tools to navigate the complicated world of sales tax management.
Wolters Kluwer is a Netherlands based publisher of research data. With employees covering a range of services —Business, Tax, Accounting, Finance, Audit, Risk, Compliance, and Healthcare, Wolters Kluwer is a full-service company. CCH, the division within Walters Kluwer that provides tax, accounting, audit, software and services for professionals, specializes in tax compliance solutions for business. CCH has a breadth of tools covering research in every area of tax law. The company makes information available via a subscription price to organizations interested in staying current with tax law changes of every type. In addition to offering its own tax solutions (for both income tax and sales tax) Wolters Kluwer also provides reference tools—including rate table updates and consulting services— for users who want to manage their own taxes.
CCH has recently rolled out a mobile solution called IntelliConnect, which brings all of the company’s research publications together online. CCH sales tax sources also include a number of publications, including books, guides, and charts.
Today’s well-funded wizards are wise to supplement their libraries with a subscription to one of CCH’s many reference tools.
Like Wolters Kluwer, Thomson Reuters is a large publisher focused on providing information for the financial, legal, tax and accounting, healthcare, science and media markets. With employees in more than 100 countries, they have plenty of experts staying on top of regulatory changes around the world.
Thomson provides research and reference tools through its Thomson Reuters Checkpoint product and offers sales tax solutions and content through ONESOURCE® Indirect Tax. According to Thomson, its “Indirect Tax content team monitors tax law changes in over 14,000 taxing jurisdictions.” ONESOURCE® Indirect Tax includes a content subscription service as well as determination software for use with business applications.
Tools available from Thomson Reuters include:
Thomson Reuters Checkpoint® —an online subscription service providing access to research and reference materials.
ONESOURCE® Indirect Tax Content —provides tax data and research
ONESOURCE® Indirect Tax Determination —a web-based “tax-content driven determination and calculation solution” that integrates with Oracle and SAP
Unlike the Scarecrow, Thomson’s tools and research team have the brains to take the pain out of sales tax compliance.
With tax professionals around the globe, Vertex has been a leader in meeting the needs of the corporate enterprise space for more than 30 years. The company’s team of researchers have expertise in “direct and indirect” taxes and their solutions serve multinational corporations in every major line of business tax including; income, sales, consumer use, value added, communications and payroll.
The company also publishes an annual sales tax rate report and offers Vertex Enterprise which “integrates all direct and indirect tax processes and technologies with host financial system applications on a single platform.”
Large multinational corporations can take heart in knowing that Vertex is there to help them address their complicated tax questions.
Transaction Tax Resources
Headquartered in McMinnville, Oregon, Transaction Tax Resources (TTR) maintains nearly 100,000 tax items and millions of tax answers. The company is known for its online resource that provides more than 4.2 million sales and use tax answers, with full legal support, images and plain English explanations.
The company’s tax content experts cover a number of specialties including “Sales and Use Tax Services, Transaction Tax Services, Sales and Use Tax Answers, Sales and Use Tax Research, Tax Recovery, Billing System Reviews, Nexus Studies, Custom Tax Research.”
Formerly owned by ADP, Taxware has a team of multinational tax attorneys and researchers who “apply their deep understanding of the nuances of local tax requirements around the globe to monitor ever-changing tax laws in over 200 countries.”
Taxware provides retail Product Taxability Matrix, which can be installed on individual cash registers, on store servers to be shared among registers, or on a central server to be shared among stores. Their “Sales and Use Tax System includes built-in functionality to protect against audits, obsolete data and changing tax laws. It covers all U.S. and Canadian tax jurisdictions and is updated at least once a month.”
For the corporate enterprise, Taxware’s solution automatically calculates taxes for sales, purchases and rentals and includes internal controls required for Sarbanes-Oxley Section 404 compliance.
You might think of Avalara as the first company to provide a cloud-based sales tax management solution. While Avalara did disrupt the sales tax compliance industry by bringing automated compliance systems to small and medium sized businesses, the company has not always been among the leaders in content. However, through a string of acquisitions and partnerships, Avalara has moved to the forefront in this critical area.
In early 2013, Avalara acquired UPC MatrixMaster™, the world’s largest database of Universal Product Codes with specialized sales taxability data. MatrixMaster is a patented, multi-state, product taxability database that maintains taxability information for more than 10 million products in thousands of tax jurisdictions across the U.S.
The company also acquired tens of thousands of fully researched and maintained product tax codes from leading industry partners. As a result of these acquisitions, Avalara’s team of sales tax and research professionals is among the largest in the industry and its full content library is among the most robust in the world. Their expertise is so valuable that they have become the official providers of sales tax content for a number of states, including Georgia, Vermont, and Nebraska. This content allows Avalara to provide its services to thousands of companies in a broad range of industries and markets, and the company also offers sales tax content as an independent product.
Avalara’s UPCMatrixMasterTM is designed specifically for the fast-paced world of retail. It’s a high-stakes world in which sellers have one chance to charge and collect the right amount of sales tax. Since retailers rely on Universal Product Codes or (UPC) barcodes to assign and manage item pricing, it makes sense to manage sales tax at the item or UPC level.
Avalara’s UPCMatrixMasterTM service identifies product taxability by UPC. The solution connects tax content with individual item codes for use in applying the correct rules and rates to every sale. The database includes every United States taxing jurisdiction and is backed up by a team of seasoned researchers. The information has been used in managing more than 300 million tax determinations covering retail transactions totaling more than $163 billion in annual sales. For the first time, retailers have immediate access to the correct tax information no matter how often their item list changes.
When you need deep sales tax expertise, just click your mouse and you’ll find yourself right at home with a magical solution from the wizards at Avalara.
It’s No Dream
From ruby slippers to balloon rides, we hope our examples have helped you get a feel for the highly complex area of sales tax management. You should also have a new-found respect for the researchers behind the curtain who invest countless hours so solution providers can make sure sales tax transactions across America happen swiftly and accurately. Thanks to their efforts, retailers are charging the right rates, consumers are paying the right amounts, and countless taxing jurisdictions receive the tax revenues they are due in support of Emerald Cities everywhere.