Taking care of US sales tax compliance in-house is exceptionally complicated because there are so many issues to consider:·

  • Charging tax at point of sale

It is very important that you are able to set up your website or systems to charge an accurate sales tax at checkout. Many platforms come with native functionality to do this, but it still takes know-how to set them up correctly and should be reviewed regularly.

  • Preparing the tax returns

Most of the state sales tax returns have hundreds of boxes, split between all the different taxing jurisdictions. For example, one transaction made to the state of Colorado may have 3 or 4 different taxes that must be charged – each of which needs to be reported in a separate box. It is almost impossible to populate a state tax return accurately if you are crunching the numbers manually – and even if you can, the time and effort required to prepare each return will be a drain on your resources.

  • Filing the tax return

Once the “pro forma” tax return has been prepared, it still needs to be filed. This involves logging into the state’s online filing portal and manually entering in all the figures into the appropriate boxes. Many states will accept an upload, and some states have an electronic filing option – but you will need to convert your data into the relevant format and develop the functionality to take advantage of this. This means most taxpayers who file their own returns are doing so manually, which is exceptionally time-consuming and prone to human error.

  • Correspondence with tax offices

Tax offices may have queries about your sales tax returns. These can be simple points of clarification or comprehensive tax audits. It is important to have a resource who ensures all tax office communications are reviewed, understood, and responded to accordingly.

As you can see, it is a very complex task to keep sales tax compliance functional in-house, unless you have a dedicated team and proprietary technology to facilitate this.

Whilst you would be able to avoid the cost of outsourcing or paying for third-party software, and it may be more attractive to keep control and full transparency over such an important function – it is very difficult to ensure the benefits of doing it internally outweigh the costs.