Costs, penalties may spur outsourcing.

• Author: Marshall, Jeffrey
• Position: Tax compliance

Small-to-mid-sized companies pay more than $327,000 annually, on average, to manage sales and use tax compliance. And, despite this significant investment, these companies still average $32,000 each year in penalties and interest due to errors.

These are among the findings of an independent survey of more than 500 finance executives at small-to-mid-market companies commissioned by Sabrix. The companies ranged in size from $20 million to just under $1 billion in revenues.

The survey concludes that changing tax rates and rules and expensive manual processes are key drivers of compliance costs. With more than 11,500 tax jurisdictions in the U.S., companies struggle to remain up to date on the latest tax regulations. And, rates change: there were 478 rate changes to sales and use taxes in the U.S. during the first half of 2006.

According to the survey, mid-sized companies file an average of 86 sales tax returns each month, although numbers can reach into the hundreds as companies grow or expand into new tax jurisdictions. In a typical month, the average mid-market company experiences a change in 16.4 percent of the jurisdictions in which its files, while some companies experience as much as 50 percent...