This blog was last updated on February 23, 2024
Should we move our tax engine to the cloud or keep it on-premise? This conversation is taking place in many organizations as they assess their approach to sales tax management. In this three-part series, we’ll explore some of the problems IT is working through to maintain on-premise solutions that may not always be visible to leadership, but that are creating issues of efficiency, scale and effectiveness.
In our first two blog posts in this series, we examined the cost and commitment from IT required to keep on-premise technology up to date and functioning in the manner a modern tax environment demands. We also talked about the different challenges of managing your tax engine on-premise, including the cost of maintaining older technology and the impact it can have on your IT organization. In our final installment, we are going to focus on the business case for change.
Making the business case for change now
Tax is viewed in many organizations as an important, but not profitable entity. A necessary evil if you will. In the real world, businesses operate within the framework of a budget. There are not endless supplies of capital, both fiscal and human assets, available to manage and fulfill every project we would like. Prioritization is required and budget dollars most often go to projects viewed as driving business growth.
Tax will never be a source of profitability, but it shouldn’t be a major cost center either. By investing in the correct tools, organizations can collect and self-assess the appropriate amount of tax at the time of transaction – making it more of a pass through as opposed to additive cost.
Here’s where the sense of urgency comes in to get this right. Governments are looking at every possible avenue to close tax gaps – defined as the total amount of taxes owed minus the amount collected each year. The Internal Revenue Service (IRS) currently estimates the tax gap to be between 15 – 18% annually or about $381B in lost revenue. Factor in the impact of COVID-19 in 2020 and this is a big problem for governments at every level. One they will seek to rectify by aggressively pursuing enforcement through notices, audits and penalties to realize as much potential tax income as possible.
The costs of waiting
There are currently more than 12,000 state and local tax jurisdictions across the 50 states. These regulations can change quickly and without notice. If your business isn’t properly collecting or remitting taxes because you weren’t adhering to the latest regulations and tax laws, you could well be facing increased penalties that cut into your profitability, further reducing the amount of revenue you keep after taxes.
If you are operating an on-premise tax solution, ask yourself, how many possible transactions are made each month that are adhering to outdated tax laws and regulations. What are the potential costs in terms of fines and penalties? A modern, cloud-based tax solution protects revenue and increases profits.
As we have covered in this series, on-premise solutions require continuous updates that are not feasible for manual operations. In many cases, they operate on older technology that is expensive to maintain and provides little to the organization beyond tax functionality. This hurts IT productivity, morale and detracts from more strategic business initiatives.
Moving tax to the cloud is easier than you might think. The desire and commitment to make the move and the right partner is all it takes to get started. If you are convinced that there is a business case for change to move your tax operation, talk to Sovos. We can help.
