A survey of sales, use, and VAT tax solutions.

• Author: Tobey, Charles

As a business progresses through the growth cycle, from start-up to Fortune 100, there is a need to assess periodically the methods and systems used to comply with sales, use, and VAT tax laws. This need can grow as the company itself grows, from doing business in a single state to doing business in all states and internationally. With expansion, the costs of noncompliance--with taxes being imposed at 4.5 percent to 10 percent on the top line--can create tremendous financial (and reputational) exposure. If handled properly, the sales or VAT tax is generally collected from the consumer and does not become a liability of the business. If proper systems are not put in place, however, problems can escalate quickly into a large liability for the business.

This article surveys the domestic tax solutions generally in use to determine sales, use, and VAT taxes. The solutions range from the use of a basic tax table to the recently available enterprise class solutions. While not exhaustive, the article provides basic information to advance an understanding of the alternatives and of why one solution may be a better for a particular set of circumstances than another. Vendors are listed in alphabetical order and represent no favoritism.

Tax Tables

For the simplest solution, many applications allow the loading of tax tables supplied by third parties. These tables are readily available from ADP Taxware, CCH, RIA Thomson, and others. When loaded into the application, they are accessed during a tax calculation based on the ship-to address.

Some applications are even more rudimentary and use only a tax code. This adds responsibility to maintain both the tax rates and the association of the customer or vendor to one of these tax codes. This approach works best when doing business in only a few states and having limited nexus considerations. Some of these applications may provide the opportunity to have customers marked as exempt and also handle limited product exceptions.

Drawbacks and limitations include:

* The solution is limited to that one application. If there are multiple applications needing taxing capability, the tax tables and maintenance needs to be duplicated for each occurrence. This adds additional complexity and costs.

* There is limited or no opportunity for maximum or varying tax conditions. In some jurisdictions, the tax may cease or the rate may decrease if the transaction exceeds a certain value.

* There is no opportunity to have a full...