The new coronavirus (COVID-19) pandemic has transformed the way business is conducted. While some changes are expected to be temporary, others could endure beyond the stay-at-home orders or non-essential business closures. For example, more businesses are likely to have more remote employees moving forward. And many will want systems that make it easier to survive should another pandemic or natural disaster occur.
Transitioning from on premise to cloud-based software solutions — especially sales tax software — is one way to prepare for whatever the future holds. The unfortunate truth is that regardless of the current state of the world, businesses are still required to collect and remit the appropriate amount of sales tax on their transactions.
On-premise sales tax solutions are installed and accessed through local devices. Because critical data is stored on-site, it can be difficult, even impossible, to access in times like these. Updates must be performed on-site by people who may not be able to get to the office.
By contrast, cloud-based sales tax software solutions (Software as a Service, or SaaS) require little-to-no onsite interaction because they’re:
- Accessed through the internet
- Automatically updated virtually
- Deployed via the vendor’s servers
Data can be accessed from anywhere where there is an internet connection. And perhaps best of all, the software vendor, not the customer, handles the changes.
There are cost-saving benefits to transitioning sales tax compliance to the cloud, as well, especially for businesses forced to reduce headcount because of COVID-19. Cloud-based sales tax solutions typically increase efficiency, enabling companies to do more with fewer employees. They’re also more accurate than manual solutions, reducing negative audit findings.
Speaking of audits, it can be presumed that once the pandemic passes, states gutted by lost tax revenue due to the pandemic will be looking for ways to close their budget gaps. Sales tax compliance audits are one way to do that.
Both the sharp decline in sales in many brick-and-mortar businesses and the various COVID-19 tax relief measures are to blame for this shortfall. Businesses who have shifted to online sales may be caught in the crosshairs, as they may be unknowingly creating sales tax nexus in new states via increased transactions or revenue earnings. You can check your own economic nexus footprint here. Note: this tool does not account for an increased physical nexus footprint that may be created due to employees working remotely.
COVID-19 tax relief
Like the federal government, most states pushed back income tax filing and payment deadlines to July 15, 2020. Since July 15 is in the next fiscal year for most states, the current fiscal year is ending with much less tax revenue than anticipated. Sales tax and other tax relief measures are adding to the fiscal woes.
Several states and localities extended sales tax filing or payment due dates to help cash-strapped businesses stay solvent during the health crisis. Some sales tax relief automatically applies to all businesses, some only to small businesses or specific industries.
For example, sales tax relief in Alabama is available only to small retail businesses in the accommodations or food service industries with monthly retail sales averaging $62,500 or less. By contrast, any business with less than $5 million in taxable annual sales can defer up to $50,000 of sales and use tax liability in California. In Colorado, where the state is offering limited state sales tax relief, some home-rule jurisdictions are providing local sales tax relief. For additional details, see this COVID-19 tax relief roundup.
Businesses will eventually be liable for the taxes due, and states will likely come looking for it if it’s late in coming. Companies that use sales tax software are well positioned in the event of an audit.
Of course, not all sales tax software solutions are created equal.
What sets Avalara apart
Avalara’s cloud-based integration into Oracle’s ERP Cloud platform includes a laundry list of features that are worth checking out. The integration assures reliability and functionality and eliminates the potential pitfalls of on-premise tax solutions. Features include:
- OCI (Oracle Cloud Infrastructure) deployment
- Central onboarding UI for Avalara ERP Cloud customers
- Centralized geography and tax content management
- Support for multiple non-Avalara geography sources
- Dedicated customer support portal
- Seamless web service launch of recurring content import in ERP cloud