3 Reasons for Automated Sales Tax Compliance

This blog was last updated on May 24, 2022

At this point, knowing that increasingly complex sales tax requirements exist is not the issue. Organizations know that they’re facing more complicated rules and regulations, but it’s more a matter of taking the time to invest in the necessary tools to properly face those challenges. With an automated sales tax compliance solution, businesses can better overcome the ever-evolving world of tax.

Sovos’ own Tim Roden, solutions principal, recently discussed those very issues with SAPinsider. SAP organizations can leverage cloud-based tax automation solutions to provide tax teams with a more robust sales and use tax compliance framework, Roden said. Specifically, rapid changes lead to greater exposure to audits or fines and tax teams face increased pressure to keep pace. Organizations can focus resources on core business activity when cloud-based automation integrations with S/4HANA enable sales tax compliance automation.

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Economic nexus laws require businesses to determine real-time product taxability to maintain compliance.

“When you file taxes, separating tax obligation by jurisdiction becomes a manual process,” Roden said. “It’s the most visible pain point that we see with organizations during a monthly or quarterly compliance process. It’s challenging if you’re not using automated solutions.”

The transition to SAP S/4HANA can be an ideal opportunity to evaluate tax automation initiatives within an overall finance transformation, according to the article. But why should organizations opt for cloud-based solutions versus on-premise ones?

Research conducted by ASUG, in collaboration with Sovos, found that 60% of respondents said they are planning to move or are considering moving to the cloud. Moving solutions to the cloud is also helpful to stay current with ERP evolutions and avoid aging out of support.

Relieve pressure on internal teams

Digital transformation initiatives, paired with evolving compliance requirements, can quickly overburden an organization’s internal teams – especially if a business still relies on manual processes.

Forty-seven percent of respondents in the ASUG survey said hosting sales tax solutions in the cloud to reduce manual work for IT staff was a top benefit. Additionally, the IT team at 58% of organizations spend one to three weeks testing sales tax solution(s) and system updates.  However, 10% more respondents from other departments claimed the IT teams spend less than one week testing. That type of disconnect will only increase issues as businesses work to maintain sales tax compliance.

Refocus resources on core business activities

When companies utilize cloud-based tax automation integrations with S/4HANA, they can enable sales tax compliance automation and allow organizations to focus on key business initiatives, Roden said.
When you apply tax on a transaction to a customer of yours, it’s important to make sure you’re doing it correctly, he explained. No business wants to lose customers because they provided a poor customer experience.

It’s more efficient when internal teams can automate sales tax calculations, efficiently track sales tax rates and rules and properly manage exemption certificates. Additionally, integrating cloud-based sales tax solutions with S/4HANA allows organizations to maintain customer satisfaction and eliminate potential cash flow risks.

Overall, moving to a cloud-based solution can help better manage all sales tax obligations, Roden said. Organizations can gain better oversight and management of evolving tax forms when there is an automated process for tracking and updating regulatory changes. Having less reliance on the internal IT team with tax-related issues will also significantly reduce pressures for those teams.