Companies Want To Outsource Sales Tax Compliance, Survey Shows

by Mike Godfrey, Tax-News.com, Washington

11 October 2006

According to a new survey from Sabrix, mid-market finance executives are looking to improve sales and use tax compliance, but still $32,000 each year in penalties and interest due to errors.

The independent survey of more than 500 finance executives at small-to-mid-market companies show that they average more than $327,000 in annual costs to manage sales and use tax compliance.

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 United States, companies struggle to remain up to date on the latest tax regulations. In total, there were 478 rate changes to sales and use taxes in the US 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%of the jurisdictions in which they file while some companies experience as much as 50% churn.

The survey also reveals that senior finance professionals are not always aware of the total cost of transaction tax compliance and actually underestimate their total cost of compliance by as much as 50%. Costs are typically spread across company personnel, tax research subscriptions, third-party tax return preparation, and tax consulting.

Nearly 60 percent of finance executives participating in the survey indicated a strong interest in outsourcing sales and use tax compliance, citing the need to free themselves from the complexity of sales and use tax management, as well as the desire to lower compliance costs. More than 75%of the survey respondents have already outsourced other financial
and administrative processes, such as payroll, benefits administration, and expense reporting, and acknowledged that transaction tax compliance is a financial business process that they would outsource either to remove the hassle or to lower costs.

Recommended