3 Key Benefits to Integrating a Tax Engine With Your ERP

Tim Roden
July 7, 2021

Whether your business is looking to expand into more states (or countries), adding ecommerce options or exploring any number of other digital needs, integrating a tax engine with your ERP can be essential to ensuring positive growth. Organizations can see reduced maintenance costs and lessen the burden on internal teams, while also experiencing increased accuracy in filing taxes and a smaller audit risk. 

If your company is implementing a new ERP, then it is especially important to consider a tax engine because you’ll need more than the native rates and or capabilities in the ERP. Essentially, leveraging a tax engine can accelerate the digital transformation of financial core applications by removing the manual processes associated with tax compliance. This allows your team to focus on other strategic initiatives and take your company to the next level.

Let’s explore three key areas impacted by using native rates/functionality of an ERP versus having a tax engine in place. 

Tax rate maintenance 

Using the functionality of an ERP when it comes to compliance means the burden of knowing and understanding all the jurisdictions and their rates is on you. There are currently 12,000+ jurisdictions within the U.S. alone, and they change frequently. This means that it is your responsibility to do constant research and vigilant maintenance of those rates. Some states, such as Colorado, will even have state, county and district levels of tax rates. 

Additionally, you need to ensure the correct association of customer locations to taxing jurisdictions. Many ERPs use zip codes to identify the tax rate, but zip codes are not the most accurate way of identifying the rate and can cause incorrect taxation. Having a tax engine can help your company maintain accurate and reliable tax rates, without putting undue burden on your employees to keep pace with those changes. 

Product and service-specific taxability

Product and service-specific taxability can be quite nuanced and can be taxed differently by location. Usually within an ERP, you have a way to make something taxable or exempt across the board. However, it’s not always so simple. A few examples:

Clothing can be taxed at a standard rate in some locations, but tax-exempt in other jurisdictictions.
Shipping cost is subject to tax while also being dependent on items being shipped.
Software may be taxed at the standard rate, at the exempt rate or it can be taxed at a special reduced rate.

Managing taxability in an ERP can be complicated because it creates limitations and doesn’t take into account taxability by location, special or reduced rates by location, and does not take into account thresholds or fees. It can quickly become too complex to stay accurate and compliant.

Customer taxability

An ERP by itself also creates limitations for customer taxability. You can maintain customer lists within an ERP (mark if exempt, etc). However, you may have different exemption types per customer, which could affect taxability differently.

Jurisdiction could also impact tax differently. The same exemption type may be taxed, exempt or partially exempt, depending on the jurisdiction. Furthermore, an ERP can mark “exempt” or “not exempt,” but it cannot handle the intricate details. ERPs also do not inherently have the ability to store images of exemptions to prove the validity.

If you are not current with your rate changes, you will be incorrectly charging and collecting sales and use tax. There could also be product and service exemptions, or even customer exemptions, that go unaccounted for. This leads to increased audit risk and exposure and dissatisfied customers. If your customers are charged the wrong rate, it is just more time spent having to fix the error.  

The bottom line is, your business cannot afford to have an out-of-date system. If IT cannot update tax software on a regular maintenance schedule, all areas of the company feel the ramifications. Some updates can take up to several hours to implement, test and put online. Tax changes are ever-evolving and cannot always be predicted. 

Integrating a tax engine with your ERP will help your business stay current with rate changes and keep customers happy. Working with an experienced sales tax professional can ensure that the integration is as smooth as possible.

Take Action

Ready to upgrade your sales and use tax solution? Check out our free guide and get on a path to better tax compliance management.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.


Tim Roden

Tim Roden is Sales Engineer, SME (Subject Matter Expert) for Indirect Tax. He and his group specialize in solving complex business and systems challenges around Indirect Tax for Global and Enterprise businesses. Tim has been providing expertise in these areas for Sovos since 2014. Prior to his time at Sovos, Tim worked as a Senior Solutions Engineer for ACI Worldwide, supporting SaaS-based electronic payment solutions for Global and Regional Financial Institutions. Tim has a B.A. in History from Wake Forest University.
Share This Post

North America Unclaimed Property
May 30, 2023
How to Set Up a Successful Unclaimed Property Program

Unclaimed property compliance can be difficult and overwhelming. Clients often ask what they should be doing to ensure they are compliant with the various laws and regulations. It isn’t easy, especially if you have multiple property types such as checks, credits or customer accounts that have the potential to become unclaimed property in multiple states. […]

North America ShipCompliant
May 30, 2023
How Hold At Locations Improve Your Customers’ Wine Delivery Experience

Direct-to-consumer shipping wine lovers enjoy the convenience of having their favorite vinos shipped to their front door. But what happens when, for whatever reason, they aren’t available to accept their wine deliveries? Whether they aren’t available during the day or they don’t have someone 21 or older available to sign for their package, these challenges […]

North America Sales & Use Tax
May 30, 2023
Identifying Sales Tax Liabilities and Why They Matter

By Steve Claflin, CLA It’s incredible that it has now been five years since the landmark Wayfair decision. It seems like just yesterday we were reading the case, alerting clients and tracking the ever-developing state guidance. Unfortunately, many companies still are not familiar with their sales tax filing obligations caused by economic nexus, or they […]

North America ShipCompliant
May 25, 2023
Out-of-State Breweries Gain Self Distribution, DtC Rights in Oregon

Under a settlement agreement, breweries located outside of Oregon now have more options for selling into the Beaver State, including direct-to-consumer (DtC) shipping and self-distribution to retailers. The settlement arose out of a lawsuit filed by a group of Washington breweries last year challenging Oregon laws that limited beer self-distribution to in-state breweries and DtC […]

EMEA VAT & Fiscal Reporting
May 24, 2023
VAT and Art: What you need to know

Significant inflation increases have impacted most of the world’s economies, with the UK still above 10% in 2023. This increase means a reduction in the purchasing power of consumers. Together with increases in the cost of raw materials, this has created uncertainty regarding growth of entire industrial departments and reduced profit margins for companies. The […]