Managing and calculating sales taxes is one of the most pervasive bugaboos companies face, and it's made more daunting by the fact that most companies do it manually.
Consider that there are more than 11,000 jurisdictional rules and more than 35,000 sales tax rates in the U.S. alone, and the magnitude of the problem starts to becomes clear. Throw in the fact that there were close to 14,000 changes to rates and jurisdictions during 2014, and the challenge of keeping on top of sales tax obligations takes on almost comical proportions.
Despite the potential exposure companies face, most don’t address this issue until the burden has grown unmanageable, at which point solving it has evolved into a monumental task. Others, like NetSuite customer ESET, a maker of antivirus software, recognize the mounting risk and tackle the problem before it has reached that point.
In ESET's case, accelerating growth rates combined with a resource-draining process spurred the company to action. And as Mary Lou Carver, ESET's accounting manager, implied during a session at NetSuite's SuiteWorld conference in San Jose, Calif., the timing couldn't have better.
To wit: Before ESET implemented Avalara's AvaTax sales tax software in 2009, the company had nexus—or a sufficient physical presence to justify sales taxation—in six states. Since then, that number has grown to 24, and while some of that may have been tied to growth (ESET's revenue has grown 274 percent over the past 5 years), the hard truth is that the company facing a significant challenge in accurately assessing its responsibility to charge and pay sales taxes. Its process was prone to inaccuracy.
"We were exporting the data, doing Excel spreadsheets, translating that data into sales tax reports, and we were doing that for each state," said Carver. "It was not easy."
ESET also was struggling to stay on top of its management of the 4,300 sales tax exemption certificates customers had filed with them. Carver said the company was attaching PDFs of exemptions to NetSuite customer records, but it had no process to ensure it had them all, nor was it able to monitor or check expiration dates.
This isn't surprising, as, according to Carver, 30 percent of companies said auditors had found that they were invoicing customers as tax-exempt despite not having valid exemption certificates, but it represented an area of substantial tax risk.
ESET went in search of a solution that wouldn't require an increase and staff, and which integrated seamlessly with NetSuite, eventually settling on AvaTax. The software calculates taxes in more than 11,000 jurisdictions at a rate of just two-tenths of a section per transaction and uses geocoding technology instead of zip code data to increase accuracy.
It calculates taxes based on hard data, stores that data for the rest of the quarter, generates reports, and ensures funds are sent to all the proper authorities.
"I'm not cutting a check," said Carver. "I'm not doing a thing."
Avalara also offers services to help companies determine their nexus status to ensure they're collecting sales taxes wherever they should be.
What may offer ESET the most peace of mind, however, is that "it's completely scalable," said Carver. "If we end up in all 50 states, it's not going to take us any longer."