4 Reasons for Retailers to Automate the Tax ProcessSeptember 6, 2011 By Nancy Rieti
Sales and use tax have taken on an unprecedented level of importance, as well as corresponding scrutiny by governments and companies in the past four years thanks to the challenges resulting from the global economic slowdown and struggling recovery.
Last year the average combined U.S. sales and use tax rate, which includes U.S. state, county, local and special purpose tax districts, hit a new record high average of 9.64 percent. The previous record of 8.63 percent was set the year prior. A steady uptick in the average combined rate was driven by continued rate changes, rate increases and new taxes being levied across the United States. Rate changes alone totaled 555 in 2010. If you count all data changes that affect tax calculation, including jurisdiction changes and something that was taxable but now isn't or is taxed in a different way, the number of changes in 2011 jumps into the thousands.
Against this backdrop retailers have found that enterprise tax automation can be a powerful resource. In fact, automation of tax processes is the most common means of staying compliant and avoiding audits.
Every retailer has a unique list of reasons why enterprise tax automation is the right choice for their business. But for most retail companies, these reasons fall into four main areas:
1. Multichannel purchases. The rise of multichannel retailing has given the retail industry much needed variety in how it engages and sells to consumers. But each channel, whether brick-and-mortar, e-commerce, catalog, wholesale or resale, comes with its own unique challenges, including sales and use tax tracking and compliance. Retailers need to have a tax practice in place that's built to handle multichannel purchases. The sheer volume of transactions means manual administration isn't the answer. Enterprise tax automation can support the need to service consumer expectations for a seamless brand experience across all channels and accurate tax calculation on everything. This includes deliveries, send sales, store returns from jurisdiction, store-within-a-store merchandising and mobile purchases for in-store pickup.
2. Jurisdictional complexity for retailers. Complexity makes it virtually impossible to accurately manage tax exception rules manually. There are a lot of special regulations to keep pace with. Tax automation with a reputable provider ensures the necessary research. Tracking is part of these complexities and is performed to support accuracy and compliance.
3. Changing tax environment. For most companies, the sheer uncertainty of tax changes has only been heightened in recent years. Over 500 rate changes in 2010 alone show that governments are looking to increase tax revenues, some even targeting the retail industry. Managing the volume of new tax rates presents many challenges for retailers who need to focus on other areas in their tax or finance departments. Automation removes this burden and ensures the accuracy of the rate and rule data.