Sales Tax Management Services
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Sales Tax Management Service (STMS) is a technology that efficiently and cost-effectively meets the sales tax compliance requirements of businesses. STMS helps businesses who become responsible for collecting taxes on their electronic commerce transactions.
STMS is the generic term for automated sales tax solutions that are delivered on-demand via a web-based “software as a service” (SaaS) solution. STMS services automatically calculate taxes for individual sales transactions. An STMS system is fully automated, and as such, it works seamlessly within businesses’ accounting software. In the process of providing these services, STMS platforms first validate an address, ensuring that calculated sales tax rates produce invoices with up-to-the minute tax rates for the correct jurisdictions.
STMS platforms operate in real time, accessing rate and regulation data from all of the United States more than 12,500 taxing jurisdictions and automatically calculating taxes, seamlessly as part of a financial transaction. This process is in sharp contrast to the more established client server-based compliance models, in which companies load and maintain software in their datacenter. Typically, they would receive tax rate and regulation updates monthly via e-mail – or on disc. Under the older systems, the clients themselves are responsible for downloading these rates, or installing the discs. This requires in-house IT support, as well as creating a constant update cost that is seldom insignificant.
The emerging STMS systems also compile transaction data, automatically remit payments and – to varying degrees – can prepare and send sales tax compliance reports required by customers’ taxing jurisdictions. STMS advocates note that these new services automate – and reduce the manpower needs and costs – for all the core elements related to sales tax compliance: rate determination, collection, reporting, filing and remittance.
This service technology was originally designed for smaller businesses, offering an alternative to the software-based solution that has been primarily priced for – and available to – for Fortune 1000 businesses that have traditionally had the broadest geographic range of tax reporting requirements, as well as the greatest in-house IT support. Small and mid-sized businesses (SMBs) have not had the resources available to adopt the high-end software solution – in-house software drawing in huge tax table databases was prohibitively expensive – even though the smallest firms faced the same statutory compliance requirements as the largest firms, a fact that left SMBs at a significant disadvantage. In part due to the Internet, even the smallest of businesses can now have significant levels of cross-border sales – and the related sales tax liability. Because STMS platform technology is available, practical and, for SMBs, affordable, these businesses now have a cost-effective alternative to solutions once available only to the largest firms.
Certified Public Accountants (CPAs) have noted that many firms – and especially SMB companies – are hard-pressed to provide staff for jurisdiction-by-jurisdiction sales tax calculations, as well as subsequent sales tax reporting and remitting. In many cases, these companies are too focused on growth in highly competitive markets to feel justified in allocating the resources needed to fully address jurisdiction-by-jurisdiction sales taxes.
The problems faced by all businesses in interstate commerce include accuracy, staying current with tax rates and rules, and eliminating the need for intensive staffing.
The most significant endorsement of the STMS approach to sales tax compliance has come from the Streamlined Sales Tax Project, once known as SSTP but now widely referred to as SST. SST is a consortium of states that has been developing a centralized standardized system for sales and use tax collection across multiple states. The first service-provider, “STMS model” vendors SST has certified to help implement and manage its centralized collection and remittance system are three SST certified service providers.
Their certified service vendors will provide participating companies with their sales tax compliance, collection and remittance services – this will be made available to all the companies who voluntarily choose to participate in the SST program. The provider’s performance will be key to validating the overall SST concept. Success for the voluntary SST program could also be vital to the SST group’s push to persuade Congress to empower states to mandate that all out-of-state businesses collect taxes on their electronic commerce and mail order transactions.
While it assists companies with multi-state and other multi-jurisdiction tax reporting requirements, the STMS platform approach to tax compliance could be even more helpful if the SST group of states manages to obtain the Federal legislation that would permit states to mandate collections by out-of state e-tailers and mail order companies. Existing law validated by the Supreme Court of the United States prohibits states from mandating tax collection by companies that don’t have a physical presence in the state where a sale is made, but the United States Congress is considering alternatives that may overturn this Constitutional provision.