When Is the Best Time to Move to a Managed Sales Tax Solution?
Emily Kordys
“Wait, we owe sales tax there, too?”
If you’ve ever found yourself saying this while juggling spreadsheets at midnight before a sales tax filing deadline, you’re not alone. For many ecommerce and online businesses, sales tax management starts as a minor headache that gradually transforms into a full-blown migraine.
What begins as a simple calculation in one state can become a complex web of compliance requirements as your business grows—product taxability, nexus tracking, different rates, and varying filing schedules. The penalties for getting it wrong can be steep enough to keep any business owner up at night.
That’s why most companies eventually turn to a managed sales tax solution to help track and calculate tax obligations. However, timing is key when considering this move, as it can enhance operational efficiency, reduce risk, and save costs.
AboveThe Fray is partnered with Zamp, a completely managed solution, to help businesses stay sales tax compliant. This post will discuss the specific signs that indicate it’s the right time to make the shift to a managed solution and how to assess whether the timing is right for your business.
What Is a Managed Sales Tax Solution?
A managed sales tax solution, like Zamp, combines innovative technology with expert service. Most managed solutions provide:
- Sales tax calculations: These solutions integrate directly with your preferred platform, like Shopify, BigCommerce, Adobe Commerce, and Amazon, to automatically calculate the correct sales tax amount for each transaction based on location, product type, and applicable tax rates.
- Tax filing and reporting: Most managed solutions file sales tax returns and generate reports to ensure companies comply with tax regulations in the states where they operate.
- Audit support: Managed solutions often provide resources or assistance if tax authorities audit the company. For example, Zamp offers an Accuracy and Filing Commitment to ensure your business maintains accurate sales tax records and stays compliant.
- Compliance updates: Tax rates and laws change frequently, and a managed solution ensures you stay up to date on anything that could affect compliance and operations.
Managed Solution vs. Manual Sales Tax Process
Handling sales tax manually can lead to mistakes that can be costly for a business. Here’s how it differs from a managed solution:
| Manual Process | Managed Solution |
|---|---|
| Can lead to errors and mistakes | Ensures accurate sales tax calculations and filings |
| Time-consuming for those who don’t know sales tax | Managed solutions make sure you are sales tax compliant |
| Manually have to check for tax rate and law updates | Automatic updates ensure your business complies with the latest rates and laws |
When Is the Right Time to Move to a Managed Sales Tax Solution?
While every business is different, some specific triggers can signal that it’s time to invest in a managed sales tax solution. These include:
- Operating in two or more states. Managing sales tax compliance across multiple jurisdictions exponentially increases complexity. When you hit the two-state mark, the time investment typically outweighs the cost of a managed solution.
- You’re spending more than 10 hours per month on sales tax compliance. Sales tax can be a full-time job. If you find yourself dedicating more than 10 hours per month on researching rates, filing returns, and addressing compliance issues, a managed sales tax solution will immediately deliver a return on your investment. Plus, you’ll get time back to focus on growing your business. It’s a win-win.
- Your monthly volume exceeds a thousand transactions. As your order volume grows, your risk exposure increases. Most businesses find the tipping point around a few hundred transactions, depending on where their customers are located.
- You’ve received a tax notice or audit inquiry. If you’ve received either one, it can be a wake-up call for your business. Tax authorities are notorious for identifying non-compliance, and penalties can quickly stack up with interest, harming your business and growth.
- You’re planning to grow into new sales channels or states. Expansion can be exciting for your business, but it comes with more sales tax obligations. Proactively implementing a solution ahead of time can help you identify when you reach nexus and need to register and file in those new states.
As your company grows, you may run into questions if you are handling sales tax yourself, such as:
- When must I file sales tax?
- Do I need to take any steps before I start collecting?
- Is sales tax charged at my location or the destination?
- How do I know when I’ve hit the economic nexus threshold?
A managed solution that offers expert service ensures you get all your questions answered. It will also track your economic nexus thresholds and sales, help you with product taxability changes, and handle registrations.
When Not to Invest in a Managed Sales Tax Solution
A managed solution isn’t always the right choice for every business. You may want to hold off if:
- You’re only selling in one state. If you have a physical presence or economic nexus in just one state with straightforward tax regulations, don’t expand too soon. Managing your sales tax obligations in-house may be sufficient for the time being.
- Your annual revenue is under $100,000. Small businesses with minimal transactions may find that the cost of a managed solution outweighs the benefits. However, you’ll want to carefully monitor your company’s growth as you could trigger economic nexus thresholds.
- You have dedicated tax expertise in-house. If your company already employs tax professionals with sales tax expertise, you may be able to handle sales tax compliance internally until your company scales to more states or internationally.
- You sell non-taxable products or services. While this is rare, if you only sell non-taxable products or services, your compliance burden is significantly reduced.
Choosing the Best Automated Sales Tax Solution
A managed solution is more than just a tool, it can help your company grow and stay sales tax compliant where you do business. Your needs may differ depending on the industry that you are in, as taxability changes.
Here’s what you should consider based on your industry:
Ecommerce
Are you operating across multiple states? You’ll want a comprehensive solution that automates nexus tracking, state registrations, and filings, ensuring you are compliant everywhere you do business.
Consumer Packaged Goods (CPG)
With fluctuating tax rates, CPG businesses require a solution that adapts to changes seamlessly, helping you manage varying tax structures.
Software-as-a-Service (SaaS)
There is no nationwide ruling when it comes to whether SaaS is taxable or not, it all comes down to the state. Some view it as tangible personal property, while others don’t because it’s not something you can physically touch.
For this reason, you want a solution that understands product taxability and the nuances of regulations to ensure compliance.
Wrapping Up
We work with merchants in all stages of growth, and we’ve seen how important the right tools (and the right timing) can be. That’s why we’ve partnered with Zamp—their managed solution makes complex sales tax management for ecommerce businesses hands-free so business owners can focus on keeping all the other plates spinning.
Not sure if now is the right time to move to a managed tax solution? Let’s chat. We can help you evaluate your current setup and advise on what you’ll need to stay compliant as you grow.
Author Bio
Emily Kordys is a Content Marketing Manager with seven years of experience in the sales tax, auto, and real estate industries. She currently resides in North Carolina with her boyfriend and dogs.
