White paper

Sales Tax Compliance Considerations for U.S. Software Providers

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What are the current technologies being adopted, challenges and future opportunities? 

Sovos and SG Analytics conducted a survey to better understand key issues and approaches to sales and use tax compliance across the U.S. software segment. More than 200 U.S.-based software organizations were interviewed, including finance/accounting and IT professionals. 

Sales and use tax compliance is a critical issue that software organizations must address to reduce their regulatory risks, increase operational efficiency and boost their bottom line. Below are top takeaways on how the U.S. software industry is evolving, current sales and use tax challenges faced by software organizations, as well as potential solutions and future growth prospects.  

  • Audits are increasing, as are their associated costs and penalties. In the last 12 months, 41% of software organizations have paid an annual audit penalty of $160K.  
  • Improving operational efficiencies is challenging for professionals managing sales and use tax compliance. The survey found that 60% of finance/accounting and IT professionals spent one-quarter of their monthly time on sales and use tax compliance.   
  • There is an increased shift towards cloud-based solutions. Eighty-three percent of respondents plan to migrate to the cloud in the next 24 months. Faster automated data feeds, database conversions and effective collaboration between different departments are helping to drive the shift.  
  • Businesses need solutions that eliminate the reliance on manual data entry. Over two-thirds of respondents said they want scalable sales and use tax solutions with flexible deployment options and data security features.  

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Read the full report to learn about sales and use tax challenges for software providers.

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The Case for Sales Tax Simplification

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As we approach the five-year anniversary of South Dakota v. Wayfair, states must take meaningful steps to ensure their tax laws and rules can be readily complied with by both local and remote sellers. State sovereignty is a core aspect of the U.S., and barring a national consumption tax being instituted, sales tax is likely to remain the sole province of state and local governments. However, there doesn’t need to be one overarching approach to sales tax for it to be simpler, and states don’t have to wait for federal mandates to start making simplifications.

This white paper will review what’s currently in place for sales tax across the nation and discuss what can possibly be done to try and make it a little bit easier.

Read this white paper for more information on:  

  • How states can make their sales tax systems meaningfully simpler while maintaining necessary revenue
  • The role of tax technology, and how it’s impacting the way states approach sales tax
  • The debate over uniform economic nexus standards

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Taxing the Digital Economy: The Anachronism of Street Address

Real estate may be all about “location, location, location,” but it is just as critical when it comes to determining accurate sales tax. Historically, customer street addresses are highly important for ensuring accurate tax determination. As technology—and the subsequent concern of privacy—evolves though, digital content providers need a path to compliance that is not reliant on customers sharing exactly where they live. 

But how can businesses walk that line? Opting for a solution supported through modern tax technology can be the answer. Organizations must address this issue head on to ensure they maintain taxing the digital economy in an ever-evolving world. 

Tax Reporting for Nonemployee Withholding

What you need to know about reporting nonemployee compensation 

For over 100 years, the IRS has looked for ways to get third parties to report nonemployee compensation payments. But that has become increasingly complicated, especially with the rise of the independent contractor workforce. Additionally, there are disparate federal and state reporting obligations, the thresholds for reporting requirements have lowered and there are other tax reporting requirement changes yet to happen. 

Typically, when taxpayers are not W-2 workers, they receive their income from independent sources. This means that the taxpayer could receive a 1099-MISC, a 1099-NEC or a 1099-K (instead of the W-2 that full-time employees receive). Depending on what was paid and how it was paid will determine which of those forms the taxpayer receives.

How can a business stay compliant with all nonemployee withholding and reporting requirements? What determines the type(s) of form that individuals receive?  

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This white paper highlights key points in tax reporting for nonemployees withholding, specifically as it relates to the 1099 forms, including:

What are the differences between Forms 1099-NEC, 1099-K and 1099-MISC?

  • What does each one mean?
  • When would you need to report those forms? 

The rise of the gig economy 

  • How has this contributed to the tax gap?
  • Why this led to a lowered 1099-K reporting threshold – and what that means for your business.
  • Which states follow the federal reporting threshold? Which ones differ? 

Common reporting issues 

  • Gross amounts v. net amounts – see examples of how to meet all requirements.
  • Understanding attorney payments and exempt recipients. When must you issue a 1099? Which form is required? 

Backup withholding enforcement 

  • Reports from the Treasury Inspector General for Tax Administration led to recommendations that the IRS create a process to identify and enforce backup withholding.
  • The IRS has not previously strongly enforced backup withholding, but it is creating a significant tax gap.
  • How much money has not been reported? What does that mean for you? 

Tax and regulatory reporting compliance grows increasingly digital. Businesses of all sizes and across all industries are impacted. Disparate federal and state reporting obligations, lower thresholds for 1099 reporting and future tax reporting changes can all impact compliance requirements for companies. Once you understand the organizational costs associated with ever-changing tax reporting needs, it can help ensure proper management of delivering all necessary information to recipients, the IRS and states. Our white paper can help clarify the confusion and provide thorough explanation to what your business must do to maintain compliance.

White Paper

Don't Let Government Mandated E-Invoicing Stop Your Business

Governments are moving away from ad hoc e-invoicing oversight in favor of always-on transparency and enforcement.

Your ERP, accounts payable/receivable, procure-to-pay, order-to-cash, supply chain and logistics, and HR and payroll systems – they’re all in play.

This new level of mandated transparency introduces a new layer of operational risk.

How will you respond?

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IRS Tax Guidance for Virtual Asset Service Providers is Coming Soon. Is Your Organization Ready?

As the IRS prepares to release Form 1099 reporting requirements for virtual asset transactions, VASPs need to evaluate the various aspects of virtual currency cost basis calculations and the resulting tax withholding and information reporting considerations. 

This whitepaper will not only allow your organization to build a scalable compliance strategy and avoid costly penalties but also negate potential disruptions of service for your clients.

This whitepaper was created by experts at Silver Management and Sovos Compliance.

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Download your free report and get:

  • An overview of the current reporting environment for virtual asset service providers
  • Background on I.R.C. 6045, which may soon be expanded to include virtual asset transactions
  • Cost basis considerations as it relates to: trading, transfers, income and payment transactions
  • Regulatory & Tax Information Reporting considerations for virtual asset transactions
  • A path to building compliance and scalability for the long-term

As cryptocurrency goes mainstream, regulators have made digital assets a priority. As such, we believe a tidal wave of new guidance is coming. This whitepaper will not only allow your organization to build a scalable compliance strategy and avoid costly penalties, but also negate potential disruptions of service for your clients.

Annual Report

Sales and Use Tax in 2021:

What’s Changed?

Complexity Continues to Rule

As the rules governing economic nexus in the U.S. grow increasingly complex, it is important to define the sales and use tax changes being considered, the ramifications of new laws on remote sellers and marketplace facilitators and the varied approaches organizations take to effectively manage their tax obligations. For example, the end of 2020 had more than 14,000 bills being considered that could change sales tax compliance requirements. During that same time in 2019, there were only 7,000 bills.

The second annual Sovos Sales and Use Tax report delves into numerous issues impacting the industry, including the long-term implications on regulatory authorities from COVID-19 and how the existing tax gap is fueling new approaches to oversight and enforcement of current laws and standards. Tax and regulatory experts provide insights and technologists offer guidance and methods to help organizations understand how to reduce financial and reputational risk by remaining compliant.

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Last year showed that sales and use tax is changing and is changing at an increasingly fast pace. New policies capture tax more accurately and sooner. States continue to test the limits of organizations’ ability to track, process and remit sales tax. Furthermore, the COVID-19 pandemic added an additional layer of complexity and uncertainty, with more states adding economic nexus requirements. 

Why this matters to your business

The digitization of tax is at center stage in many growing businesses’ agendas. Organizations are quickly determining that automated technology solutions are increasingly critical to ensure a positive user experience. Are you confident that your sales tax solution will keep pace with every change or update? As your company evolves and changes, can your tax solution keep pace? Are you facing costly database or hardware upgrades and replacements? What’s the best way to ensure your solution seamlessly scales along with your business needs – all while maintaining compliance and controlling costs?

Sales and use tax manual processes are quickly becoming obsolete, creating a substantial burden on your team to meet new requirements to remain compliant. To that extent, what are the opportunity costs of managing sales tax on your own? What other critical business functions could your team be focusing on instead? And let’s not forget a worst case scenario: What happens when you change your processes, choose to manage sales tax on your own and get it wrong? Having a cloud-based sales tax software can reduce manual work while also offering better integration, faster updates, more automated processes and easier data management.  

Why talk to Sovos

Sovos understands that sales tax is complicated, which is why we compiled data, best practices and guidance from real experts to make the process more efficient and seamless. This report discusses the current state of the industry and what is likely coming further down the line, helping you garner a more complete understanding so you can maintain compliance without losing productivity. 

Ready to take the first step toward modern tax compliance? Download the report and reach out to our team with any further questions.

White paper

Don't Let Government Mandated E-Invoicing Stop Your Business

Governments are moving away from ad hoc e-invoicing oversight in favor of always-on transparency and enforcement. Your ERP, accounts payable/receivable, procure-to-pay, order-to-cash, supply chain and logistics, and HR and payroll systems – they’re all in play.

This new level of mandated transparency introduces a new layer of operational risk. How will you respond?

SAP® Central Finance and Digital Tax Compliance

Critical Prerequisites to Successful S/4HANA Digital Transformation

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Overcome the hidden barriers to your SAP Central Finance migration

For some SAP customers planning a move to Central Finance, tax compliance will not be a priority. Unfortunately, that will be a costly oversight. Today, those who fail to comply with global tax mandates face costly audits, financial penalties, decreased cash flow and damaged relationships with suppliers and customers. Non-compliance can even derail your Central Finance and SAP S/4HANA migrations altogether. And in some countries, it can bring your entire business to a screeching halt.

Get the free Compliance at the Core white paper and learn:

  • the tax compliance barriers you may have overlooked
  • how to prevent costly roadblocks
  • how tax compliance mandates will affect your Central Finance migration
  • precise steps your business can take to ensure your migration isn’t derailed due to non-compliance
  • what a successful migration to SAP Central Finance looks like

Trends in E-invoicing Compliance, 10th Edition

This paper outlines in detail the global trend towards real-time tax ‘clearance’ of invoices and how this impacts businesses in their day-to-day operations and business-to-business transaction automation strategies.

Since the last edition, the trend towards compulsory transaction-oriented integration of e-business systems with public authorities has continued to accelerate. The growing consensus among e-invoicing and VAT professionals is that indirect tax controls are quickly evolving towards real-time whereby tax administrations essentially become a ‘third trading partner’ in the exchange of sales and purchasing data between suppliers and buyers.

Download this paper for our insight into how companies can ensure their push towards automation with tax administrations doesn’t end up fragmenting their digital transformation of business processes.

19 Things About Compliant Invoice E-archiving

Most enterprises already have one or several solutions for
storing electronic data and documents. Such content management or other applications often include excellent features for aggregation, indexing, analyzing and general management of
a company’s information resources.

However, when storing original electronic invoices and similar legally critical documents, such solutions may not offer the level of legal requirement monitoring, specific regulatory compliance features and documentation that is needed for multi-country legal archiving.

In this guide our experts look at the international requirements for compliant e-archiving and how we ensure our partners and clients remain compliant with the Sovos eArchiving solution.

Trends: Insurance Premium Tax

Tax Compliance for Tomorrow

It’s no surprise that the pressures on governments globally to raise revenue, close loopholes and reduce fraud, continue to mount.

Across Europe within the last 12 months we’ve seen this increasingly with tax authorities taking steps to improve efficiencies with technology at the forefront.

This report takes a holistic look at the insurance premium tax compliance landscape.  It looks at what’s driving increasing governmental demands and the challenges insurers face.  It contains the views and thoughts from the Sovos global practice including our indirect tax, e-invoicing and other subject matter experts from across the organisation.

Don’t Let Sales Tax Stop Your Ability to Sell

Managing sales tax should never be an impediment to core business objectives. Whatever industry in which your business operates, you aim to provide products and/or services to your customer base – managing sales tax is not your core objective. However, sales tax cannot be an afterthought either.

Deciding on and implementing a sales tax process or solution for your organization is essential for meeting all levels of compliance requirements. No one wants to face costly notices and audits. Finding the right approach to sales tax management also requires an evaluation of your business’ internal capabilities, existing technology and varying levels of expertise.

Remember that no business is too small when it comes to sales and use tax collection and remittance. Since June 2018 with the passing of the South Dakota v. Wayfair, Inc. Supreme Court decision, the sales tax world was forever changed. Nearly every state has enacted and further refined its rules regarding the sales tax collection responsibilities of remote sellers. The number of jurisdictions and regulations are continuing to grow and become more complicated.

Local, state and federal governments alike are implementing more digital options to help increase their ability to collect revenue, reduce fraud and shrink the tax gap. Furthermore, the Wayfair decision greatly expanded organizations’ nexus footprints, and states are moving quickly to establish new regulations to maximize income owed. Notices, audits, penalties and fines will be used more aggressively as tax authorities work to expedite collections and improve transparency.

Even if you have a process in place for sales tax nexus management, it could be a good idea to ensure that it’s the best approach for meeting current compliance needs. Manual processes are not enough. The required automated assistance and expertise can often exceed the capabilities of most internal business units. Reliable cloud-based software that can automate the regulatory update process, manage labor intensive activities and stay up-to-date with the latest changes is becoming more essential each day.

Along with regulators to consider, businesses must also be aware of how a poor sales tax management process impacts customers. What if your sales tax calculation software takes too long to calculate tax at the point of transaction? Or, what if the incorrect sales tax is calculated, forcing you to charge more to the customer after the sale has occurred? Customer expectations must continuously be met, even as sales tax compliance requirements evolve in complexity.

So what is the true cost of tax management on your business? Can the right tools really give you sales tax peace of mind? We explore both of those questions and more in the following white paper.

Bridging the IT-Tax Compliance Gap

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Compliance Mandates Around the World Have Elevated the Importance of Tax.

It is more important than ever that IT decision- makers and in-house tax and finance professionals enter into meaningful, strategic conversations about how—and why—to accelerate digital transformation to respond to invasive new tax mandates.

Read more and download the pdf.

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Overcome the hidden barriers to AP tax compliance

Meeting the challenges of accounts payable (AP) automation in the new world of digital tax requires two important components: modernization and consolidation of disparate AP systems and integration into SAP. Companies that don’t have their AP resources in line with domestic and international tax mandates risk not only resource-sapping and potentially costly audits, but also diminished cash flow, supply chain interruptions and strained supplier relationships.

AP tax compliance is a critical component of any SAP shop’s implementation strategy, including the move to SAP S/4HANA. AP leaders ignore it at their own risk. 

Get the free Accounts Payable Tax Compliance white paper and learn:

  • How to solve AP automation challenges that occur when tax authorities require data at the transaction level
  • How to overcome supplier errors and AP system diversification
  • How to avoid costly AP-induced audits
  • How to ensure both compliance and data purity in AP e-invoicing processes
  • The different variations of digital e-invoicing and VAT reporting AP teams will face

Online Reporting for Unclaimed Property

With each state, plus a few other areas, having its own rules for compliance, managing unclaimed property is massively complicated. Reporting online can ease a lot of the pain, but the process comes with challenges as well. Learn how to master online processing and stay compliant despite the murky regulations surrounding unclaimed property.

The Gartner 2021 CIO Agenda: A U.S. Perspective

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Gartner Survey 2021 CIO Agenda: A U.S. Perspective

Sorting out tax compliance issues was not traditionally on the top of the IT organization’s to-do list, but compliance mandates around the world have elevated its status. It is more important than ever that IT, tax and finance leaders work together to accelerate this other digital transformation – the one driven by global tax authorities. As CIOs learn more about the role they have to play in compliance, they’re also facing other challenges and opportunities.

In the Gartner 2021 CIO Agenda: A U.S. Perspective, “respondents in the U.S. report digital business acceleration in the face of COVID-19 and an increased opportunity for business redesign. Despite being global pace setters, U.S. CIOs have a lot of opportunity to leverage digital innovations for value creation.” 

To read more Gartner findings about how U.S. CIOs continue to evolve in their roles, complete the form for complimentary access. 

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GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally, and is used herein with permission. All rights reserved.

Gartner, 2021 CIO Agenda: A U.S. Perspective, Chris Howard, 5 January 2021

How to Get a Handle on Tax Information Reporting This Season

Year-end is quickly approaching, which means so is the 2022 tax season. Sovos has been helping companies Solve Tax for Good for over 30 years with our integrated solutions that make managing tax obligations and complying with IRS withholding and information reporting requirements faster and easier. And during this time, we have seen many businesses fall victim to last-minute hurdles and obstacles related to year-end reporting.  

Download this white paper to learn some of the most common issues organizations face during year-end 1099 reporting, along with best practices to help your business avoid them.

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When preparing for your 10-series forms year-end reporting, consider the following:

There are a range of preparations and mitigations businesses can put into action. Among the most important steps to be taken are to:

  • Tracking due dates
  • Communicating due dates to partners and stakeholders
  • Testing data quality
  • Testing all outputs
  • Balancing withholding amounts before filing
  • Filing extensions
  • Communicating changes to recipients
  • Balancing file data
  • Protecting recipients private information

One of the biggest issues that we see in tax reporting is organizations that treat this as a once-a-year obligation. Organizations that wait until the end of the year to begin preparing for the busy month of January often find themselves working long hours, mailing out incorrect tax information and filing corrections and amended corporate returns. Protect your organization while reducing time spent by treating your 1099 tax information reporting process as a year-round responsibility.