How to select a sales tax software solution

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Introduction

Today, there are thousands of taxing jurisdictions throughout the U.S., creating a kind of ‘sales tax labyrinth’ for companies looking to become tax compliant. Not to mention, major events such as the worldwide pandemic have increased consumers’ appetite for online shopping which further complicates the path to compliance for many companies. This growth can unexpectedly alter where companies must collect and remit sales tax.

According to our Future of E-Commerce report, 78% of finance leaders say they believe their e-commerce business will continue growing in the future.

Finding an automated sales tax solution that works well with your existing tech stack and ERP system is a great first step toward compliance.

Whether you are searching for a sales tax compliance solution or looking to switch from your existing provider, this guide will help you think through the best path forward.

Understanding the business needs

An excellent first step in your software evaluation process is to assess your business needs today and in the future. A sales tax solution that serves you today may not be enough as your business grows so consider the following:

  • Are you expanding into new markets (e.g., geographies, reaching new audiences, expanding product lines)?
  • Are you growing your business (e.g., raising additional rounds of funding, IPO, or acquisition)?
  • Are your employees more dispersed across the U.S.?

If your team manually files and remits sales taxes directly to each state or tracks rate changes via spreadsheets, automation could save you time and reduce human error.

What if you’re switching from your current vendor?

Auditing what your current vendor provides upfront will help as you consider other vendors. Here are a few things you’ll want to look into with your current provider to help assess whether or not a move is worth making at this time:

  • When does your agreement/contract with your current vendor expire?
  • What about the new tool makes it more attractive to your company?
  • Request historical data from the following sources:
    • State reports
    • Transaction-level detail
    • Copies of state sales tax filings

Note: Most providers can provide ~7 years of data. This is the lookback period for most state audits. However, California requires eight years, and Texas has no lookback limit, so we recommend exporting as much data as possible.

Ask the right questions upfront

Deciding on new software is a huge responsibility that impacts multiple departments and employees. Companies that purchase the wrong software or improperly deploy the ‘right’ software could cause headaches down the line. The following questions should provide a good baseline of information as you research potential vendors:

  • Do you have experience with my industry, product, service, or company size?
  • How much do you know about the regulatory landscape of my industry (e.g., for highly regulated industries such as healthcare)?
  • What sort of education/resources can you provide to help fill knowledge gaps on my team?

Keep an eye on accuracy and performance

With thousands of sales tax jurisdictions across the U.S., the best sales tax solutions seamlessly provide real-time, rooftop-level rates at checkout. Part of this means dedicating resources to keeping sales tax rates across states and localities up to date, which is challenging without a system or strategy in place. Additionally, a fully dedicated research team provides product tax code content to help you determine the taxability of your products to ensure you’re charging the most applicable tax rates at checkout.

In addition to rate accuracy, system performance and reliability are significant factors in choosing a sales tax vendor. Rate accuracy, system reliability, and speed are must-haves, especially for e-commerce retailers.

To get a handle on a vendor’s accuracy and performance, start with these questions:

  • How does your team keep sales tax rates and product tax codes in your database up to date?
  • What are the average uptime and average response time of your API?
  • What happens if your service is unavailable?
TaxJar’s sales tax API 99.99% uptime

Sales tax reporting & automated filing capabilities

Knowing where you’re obligated to file and collect sales taxes is critical. An effective sales tax solution will compile your information into a single dashboard that shows you how much sales tax you’re collecting across states, track where you’re approaching economic nexus, and keep up with filing deadlines.

To remove the burden of filing from your team, consider a vendor that offers an automatic, easy to enroll, electronic filing service to help you prepare and file state returns and remit payments. If you could use automation to ensure you’re making the right choices in your sales tax workflow, consider asking a vendor these questions:

  • Do you have an automated filing service?
  • If so, what are the fees associated with the filing service?
  • How hands-off is the service?

Understand the technology

Technology is at the heart of any modern sales tax solution. As your business demands fluctuate, you’ll need a solution agile enough to meet your performance and scalability needs at each stage of growth or in response to seasonality. Traditional, on-premise solutions can have high upfront costs and take months to implement compared to a cloud-based solution. TaxJar’s cloud-first approach enables our modern API. It is built to scale and powers our automated filing service, which uses robotic process automation (RPA) and rule-based automation.

Here are a few things to look out for as you get started on your journey:

  • How can our developers get hands-on with your product (e.g., sandbox)?
  • Can you speak to any AI or ML components of your solution?
  • What languages do you support?

Implementation support

Implementing new tech doesn’t have to be disruptive if you consider upfront how it’ll impact existing systems and teams. That’s why it’s essential to know how a prospective vendor will collaborate with your team during the implementation process. Before moving forward with implementation, consider the following:

  • How will you support us throughout the implementation process?
  • What is your SLA?
  • Does your solution integrate with existing systems at my company?

Security first approach

Any sales tax solution worth considering takes the necessary steps to keep your company and customer data safe. Your solution provider should go beyond the bare minimum industry standards so that you never have to ‘worry’ about security.

Whether it’s compliance or security certifications, data encryption, or security monitoring, the best vendors go above and beyond to keep you and your customers’ data safe. To get a handle on the security practices for the vendor(s) you’re considering, here are a few questions that’ll steer the conversation in the right direction:

  • What security measures do you have in place to keep my company’s data safe?
  • Can you describe your security features?
  • What compliance or privacy certifications do you currently hold?

 

SOC 2 (Type II), HIPAA Compliant, GDPR Compliant, Cloud Security Alliance

Support existing integrations

Today, most businesses leverage a combination of online and offline channels to reach customers. For e-commerce specifically, a sales tax solution should seamlessly integrate with your existing shopping cart, ERP software (e.g., NetSuite), marketplaces (e.g., Amazon), or allow for custom integrations.

To ensure your existing integrations are supported, here are a few things you’ll want to know:

  • Do you have integrations with my shopping cart, ERP, or marketplaces, and will it transfer data directly into my sales tax dashboard?
  • How do your integrations work, and is there any upfront work on my end?
  • Who developed the integration?
TaxJar's supported integrations include Magento, BigCommerce, Shopify, Ebay, and more

Put the customer first

Implementing a new sales tax management solution isn’t always easy, but with dedicated technical onboarding, multiple support channels, self-service learning, and real people by your side, it can be. After all, what good is a software solution if you can’t get answers through real people or easy-to-use resources? Likewise, if you have key implementations and can’t get them working correctly or if your team gets tripped up during onboarding, a good vendor will be there with you every step of the way.

Look for a sales tax solution that offers an excellent customer experience from product to person – start with these questions:

  • What’s your service-level agreement (SLA) for support questions?
  • What self-service resources are available to help answer my questions?
  • Which support resources are offered at each pricing tier?

Momentum leader Spring 2022, best support Spring 2022, easiest to use Spring 2022, best relationship Spring 2022, easiest to do business with spring 2022, users most likely to recommend spring 2022

Find the right partner

Of course, no two paths towards sales tax compliance are identical, so your sales tax vendor should act as a sherpa, helping you navigate your journey to compliance.

TaxJar works with many growing SMB and mid-market companies, and was recently named a ‘Leader’ in the IDC MarketScape: Worldwide SaaS and Cloud-Enabled Sales and Use Tax Automation Software for Small and Midsize Businesses 2021 Vendor Assessment.

If you want to learn more, reach out to TaxJar for a free consultation to help you assess whether or not we’re the right fit for your business.


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