Which Sales Tax Solution Does My Business Need?

This blog was last updated on December 6, 2022

Picking the right sales tax solution is not always apparent. Federal, state and local regulations can quickly change. Businesses evolve, whether through introducing new products and services or by expanding into new jurisdictions. Organizations must consider internal processes as well, ensuring that a sales tax solution helps–not hinders–daily operations. It’s also important to independently evaluate whether a cloud or hybrid-based tax engine is right for the business.

But how do you know which option is best suited for your company? Does it really matter what type of implementation process occurs?

Here are three solutions that could be the answer to ensuring your organization’s sales tax processes run smoothly and keep you compliant.

Standard rate file

What is a standard rate file? 

• This is a table containing pertinent rates for zip codes. These rates are applied to your solution and used in completing orders for your customers.
• Depending on your back-end system, you may not be able to integrate with a third party.

When is this solution best for me? 

• A standard rate file is an ideal sales tax solution if you are manually researching rates and updating your back-end systems, or if your business relies on IT to make those updates.
• This is often a low footprint for IT to pursue in relation to integrating the technology.
• The best cloud solutions can be subject to internet latency, so rate files can be a backup option for when you are offline.

What would it look like to utilize this tax solution? 

• Implementing a standard rate file requires someone (likely working in tax or IT) to download a file and upload into the system. It is necessary to troubleshoot the sales order process based on new changes.
• Standard rate files assist with tax calculation, but businesses must consolidate all source channels to file accordingly and accurately.
• Remember to check potential tax changes such as sales tax holidays, sales tax exemptions, fees and more as a rate file typically covers limited tax scenarios.

Tax determination engine

What is a tax determination engine? 

• A tax determination engine is a cloud solution that integrates directly to primary transaction systems to accurately determine rates, regardless the jurisdiction or product.
• Organizations can utilize rate and form changes across all jurisdictions.
• This can be a scalable solution that evolves with your business.
• Tax engines can be offered as an on-premise, hybrid or cloud-based solution.

When is this solution best for me? 

• This is an ideal sales tax solution for businesses that are facing fresh complexities, such as new distribution channels, products and services.
• A tax determination engine is best when you want consistent accuracy, regardless of how your business expands.

What would it look like to utilize this tax solution? 

• If you are using an on-premise tax engine, your process will be very similar to the rate file workflow. However, this experience drastically improves as access to more thorough tax logic can be accessed for even the trickiest of offline taxing.
• If your organization uses a cloud-based solution, rate changes will be reflected immediately. In events like sales tax holidays, you can rest assured that you are covered for the correct items and period of time.
• Having multi-threaded tax for your omni-channel experience can consolidate your tax details within one place to keep track of your nexus.

End-to-end compliance solution

What is an end-to-end compliance solution? 

• An end-to-end compliance solution refers to a connected suite of products that pass data to each other.
• Depending on the needs of an organization, this may include a tax engine, filing solution and exemption certificate management tool. The tools that track your taxable and exempt transactions can also consolidate directly into the filing details that populate your returns.

When is this solution best for me? 

• The end-to-end option is for businesses that are ready to optimize compliance tasks and introduce more efficiency into daily processes.
• It is also ideal if you are operating multiple transaction systems, or your channels need a single source of truth for tax.
• End-to-end helps ensure growing exempt customer volumes are taxed appropriately.
• This option eliminates bottlenecks during research of taxing scenarios.

What would it look like to utilize this tax solution? 

• When an order is placed, your tax engine would calculate the appropriate rate based on jurisdictional rules. This engine would then pipe your transaction data and tax information into the filing solution, where your team has transparency into what data is flowing to your forms.
• If applicable, your tax engine would also utilize your exemption certificate tool to apply any relevant customer exemptions.