Cautionary Tales - Should All Software Companies Be On Autopilot?
Michael J. Fleming is the founder and president of Sales Tax and More, a full-service consulting and solutions firm with a passion for state tax. He is one of the country's leading authorities on sales tax issues such as consulting and research, registrations, returns, nexus, drop-shipping, eCommerce, and service providers.
Michael is a renowned writer and speaker, and he regularly presents on webinars. He is also the host of the Sales Tax and More Podcast, where he shares his wisdom and learnings with his audience in order to help them navigate the tricky world of taxes.
In this episode…
Mike Fleming and Ellie Moffat talk some sales tax horror stories involving sales tax software companies.
Here’s a glimpse of what you’ll learn:
Cautionary Tales
What should these businesses do going forward?
Bonus Content! States Hold Power
Learn more about CereTax.
Connect with Michael
Episode Transcript - Audio Version
[00:00:00] Welcome to Sales Tax and More, your go to resource for all things state tax related. Now, here is your host, Michael Fleming.
Hi, Mike Fleming here, founder of Sales Tax and More and today's co host of the Sales Tax More podcast, where we talk about everyone's favorite topic, which is of course, sales tax. Now, if you've listened to me before, you know that I have a love hate relationship with the, the sales tax software companies, some of them more hate than love, some of them more love than hate. But one of the things we hear often is that the sales people say that, Oh, just use our software
[00:01:00] and then you can put everything on autopilot. And today we're going to tell you about a couple of stories of why you cannot just go on autopilot. Why, if you choose to use these software companies to do services, in other words, follow your sales tax returns or something other than calculate rates and taxability, why you need to be vigilant.
Before we get into that, let me introduce you to my co host Ellie Moffat. Hey everyone, great to be here. I'm going to do a quick introduction for Sales Tax and More. So yeah, Sales Tax and More, we are a full service consulting and solutions firm. We have a really great team here of experienced tax professionals who are very dedicated to fulfilling your state tax and related needs.
So we do a lot of sales tax returns, sales tax registrations, consultations, research, and like our name states more. So if you have questions about our services, if you'd like to work with us, please reach out. We'd love to hear from you. And if you enjoyed this podcast, please subscribe to
[00:02:00] our channel as well.So Mike, like you mentioned before, these are stories of software companies that should potentially not be on autopilot. And we might call an episode like this a horror story, depending on the time of the year. But really we think that this is a cautionary tale worth telling because of so many people's experience.
So Mike, do you want to jump right in and start telling us these stories? Yeah, I've got three that I really want to talk about today. And the, the first one, it's one that we just keep hearing over and over and over again. And it has to do with the streamlined sales tax program. And right now, this is generally going to be one of the most profitable areas for a company because the states pay them, to, file returns.
Even if it's 0 returns, the state is paying them to file a return. On your behalf. So, this is also, you know, is free really
[00:03:00] free because a lot of people who think they're getting free returns end up paying for it in a long run. And this, you've heard me talk about these types of stories before, but we just had another client come to us and, they were not collecting in the Colorado locals.
Now, to be fair to the software company in the fine, fine print. It says that they don't file those returns for, you know, as part of the streamlined program and you got a contract for them separately. However, the salespeople don't bring it up and the, it's in the fine, fine print. It's not plastered real big out there anyway.
So, this person, came to us. And they've got, they found out they have like three years worth of back taxes that are collected and not remitted in Colorado and in Puerto Rico, all of the local jurisdictions in Colorado. So I don't like
[00:04:00] the streamlined program for a lot of different reasons, but this is one of the main reasons you don't have a whole lot of visibility into your tax accounts.
Some states don't even know that they're members. The streamlined sales tax program. And it's, it's actually, you know, one hand doesn't know what the other is doing when it, when it comes to that at the state level. So, you know, I'm digressing here a little bit, but I, I just don't like the, streamline program for a number of reasons, one of the biggest reasons Is that you're generally going to be locked into doing business with one of the software companies.
And I think software companies serve a purpose. They're a necessary evil. It's for, you know, figuring out the calculations, the taxability, the rates. But I don't think that they're very good when it comes to services like it. Doing returns. There's just a, and there's a number of reasons for that, you know, they don't have someone looking at your account as a whole, they
[00:05:00] have everything siloed and even at the company, one hand doesn't know what the other hand is doing and a lot of things fall through the cracks because of that.
So here's a company that is collecting the tax. And for three years, they weren't remitting returns and there's no communication about it. So now they come to us, they've got all of this tax collected, not remitted. I mean, hundreds of thousands of dollars. I mean, upwards of half a million dollars in tax collected, not remitted.
That's not a small number. And, of course, you know, the company doesn't take any responsibility for it. Hey, you should have read your fine print and, you know, so say it too bad. Now they have to pay all of the penalty and interest for not getting that remitted. So they came to us and, you know, one of the great things about these software companies trying to do services is that there are great source of referrals for us, not on purpose, but people usually go to them and they want something
[00:06:00] different. They want someone who's going to be talking to them. They want more handholding. They want more of that human interaction. And that's where we come in. So these people approach us and what do we need to do? Well, you know, the local jurisdictions in Colorado, some of them do have formal VDA programs.
Some of them don't, but, You know, we had to make calls to all of these jurisdictions and and work something out because the amount of money was not something that you could sneeze at. So, we, we did that. We got all of the money remitted and or we're in the process of doing that. And the client's happy and moving all of their business to us.
So, but this is something that I can't stress enough. We're seeing more and more of this tax collected, not remitted. So you can't just assume that the company that you're entrusting to file your returns even when they're collecting the tax on your behalf, that
[00:07:00] they're going to communicate to you that there's an issue.You've got to be vigilant. You got to follow up. You got to make sure that someone on your side is checking to see that the software companies are actually doing what they're supposed to be doing and what you think they are doing. And often it's not. And if you're being vigilant, then. Sometimes you catch this before three years go by and the penalties and interest will really start adding up.
So that's my first story. And it's a it's it's really time after time after time. You've heard me talk about other companies in the past. Colorado is always an issue. Louisiana is a big issue. The business and occupation tax in Washington is a big issue. So these are all those variations on that theme.
The second one I want to talk about today is, is a little bit new. I've not heard
[00:08:00] of this before. I can see why it happened, but, it was a new one on me. So, this company, actually started selling on a lot of marketplaces and didn't have a need to be registered in a lot of states. They were registered on marketplaces and on companies like Shopify. So at one point they had a need to be registered everywhere, but, then they went to primarily marketplaces and they hired us to close out their streamlined accounts and they told Avalara that they no longer needed their services. And I wasn't going to mention companies names here today, but just let the cat out of the bag. So this is Avalara. And if you know anything about Avalara, they, you know, they want their money.
So even though this firm told them that, they didn't need their services anymore. Well, the states pay Avalara. So there was still time left on this contract. So we went in, closed out
[00:09:00] all of these accounts. And, that was like three years ago. Then Avalara went in behind us. Opened those accounts back up so they could be paid directly by the states.
They filed zero dollar returns. And now here we are, their contract runs out like, 12 months ago. And they stopped filing. So now you get open accounts and no returns being filed. So, the client starts getting all of these letters in the mail and they come to us and they're upset with us. And they said, Hey, I thought that you closed out all these accounts.
And we said, we did. And we pulled up all the paperwork. We showed him how each one of the accounts was actually closed. And that's when we found out that Avalara went in behind us, reopened those accounts, filed all of these zero dollar returns so they could get paid even though he told them he no longer needed their services. And now he's got,
[00:10:00] you know, years worth of back returns. He has to file and the state is all upset. So we had to go in behind, Avalara and we had to, reclose all of these accounts, which he already paid us once to do that. And unfortunately it's not our problem. We didn't. You know, getting out of the streamlined sales tax program are, you know, Krista Sleeper uses the term.
It's like getting jumped out of a gang. Once you're in, it's hard to get out. So unfortunately we had to charge them again to go and do all of the work. That we had already done over three years ago and have a layer was making money on him, even though he told them to, he no longer needed their services.
So, in the long run, the only extra money that he had to pay was us to close out those accounts. We were able to get all the penalty and interest waved we're able to get those accounts closed as of, the date that Avalara filed that last return. So I, that just strikes me as bizarre. How
[00:11:00] in the world can a company in good conscience do something like that? And that's a new one on me. So anyway, I, I understand why. I mean, it's their most profitable area of their business. If you're going to get paid for, you know, filing zero dollar returns, go ahead and do it. I guess they were thinking, Hey, it's not going to impact this guy at all, but it did. So that's that's case number two.
You gotta. Kind of make sure, you know, what's going on with the people that you're doing business with. Then, we've got another one and, there was, this company had a small seller program and, they, sent out an email and they said, we're discontinuing our small seller program and you can change to our normal program, or we're not going to file returns for you anymore.
One email. At least that's what I've been told. Maybe there were more emails. There's always two sides of a story. But no one picked up a phone, no one called him, no one did anything, and this person had
[00:12:00] been filing returns with them for the last five years. And all of a sudden he starts getting a bunch of letters, and these states want the last, you know, seven, eight, nine months, worth of returns, and, in the software company's defense, this person should have been following up.
They should have not let everything go on autopilot. You know, look at your bank accounts. Is the money being pulled out or are these returns being paid? And this is why we say that, you know, no matter who, which company you're dealing with, you can't just let it go on autopilot. You got to make sure you know what they're doing.
So when this person didn't respond to the email, they just stopped filing returns for him. So now we've got to go in behind them. You know, thank goodness for software companies. They're a great source of referrals. They don't mean to be, but they end up being, and he's a much bigger client than he
[00:13:00] was, when he was, at the software company to begin with.
He, is selling on a lot more platforms and, it's a good client for us. You know, it's, it's not the largest client that. And never going to be the largest client, but they're not going to be a small client either. They're a good solid client. I don't know why they were still on their small seller program.
But anyway, we had to go in. Now we get to file all of these back returns and back returns are processed. If you look at any company out there who does back returns, they're always going to charge more than the current returns because there's just so much more work involved in doing the back return and clearing the notices and paying the penalty and the paying the interest and everything else, so it's It was quite a mess and you know, we've got to stay on top of the people we're doing business with.
So those are my three stories, for today. You know, it's a, the bottom line is, you know, software companies serve
[00:14:00] a purpose. In this day and age, you gotta have a good software company that you trust, the company that I like the best right now is called CereTax.
And, if you want some information on them, you can reach out and, we'll get it to you. The reason why I liked them the best, number one, they've got the most recent technology out there. These other software companies, they, a lot of them haven't updated their software in the last 10 years. And, you know, and when it comes to technology, 10 years is a lifetime.
So they've got the most cutting edge technology out there, which is great. And number two, they concentrate on what software companies do best. They're concentrating on the software, that's where they're putting all of their efforts. They don't even offer services. And I think that that's where all of these software companies get themselves in trouble, is when they step outside their lane, they step outside of what they were created for, and
[00:15:00] start trying to be everything to everybody. And that's where they hurt a lot of people. So, Ceratax is my favorite. If you're going to continue on with a software company and you got to have some software company because trying to figure rates manually is just not an option for a lot of companies. If you're making, you know, a couple of sales a month, sure.
You know, we do have clients like that, that, you know, have, each sale is a couple of million dollars. You have four or five sales like that. That can be something you do manually, but if you're having hundreds or thousands of transactions a week, you need some type of automation. So the software companies serve a purpose.
But one of two things, either get someone else to actually do the service side, do the return so they can keep an eye on this. Or you can't stay on autopilot. You got to be more vigilant and you got to follow up on these
[00:16:00] software companies yourself. So, Ellie, is that enough of my high horse right now? Have I, have I made my point known, about the limitations? Mike's voice got high. That's how we know it was serious. But Mike, I, I, this is going to be some reemphasis of the points you just made, but I really, I want to address this question directly as well. But what should these businesses do going forward?
If there, if someone finds themselves in a situation like this, what's the next step? Well, you got to stop what the problem is. That's number one. So you got to bring it to someone's attention. If you're going to stick with the software company, then you got to pay them to, to fix all of the messes. And they're not going to usually cut you any breaks, even though it is, at least partially their fault.
And they're usually not going to be the cheapest option out there. So, you gotta identify the problem, you gotta stop the problem from continuing to happen, and
[00:17:00] then you gotta correct the problem. I would suggest you find someone like ourselves who can come in, and help you diagnose the problem, and then lay out a plan to correct the problem, and then, make sure it doesn't happen going forward, which is getting away from the software companies for the service side of the business.
We do this, we do it very well. But there are other companies like us out there that can help you also. So no matter what you're doing, it's those, those three things, Ellie, you got to stop the problem from happening, stop the bleeding, and then you've got to, you know, correct the problem and then you got to make sure the problem doesn't happen again.
CPR for your sales tax situation, sort of, kind of, okay, Mike, anything else you want to add in here? Anything else you want to go over and cover? Well, something happened this week and it's off topic, but I really want to talk about it. And, you know, I, I say a lot of times that the states have all the
[00:18:00] power. And this had to do with Secretary of State. We do Secretary of State work also. So, something needed to turn very quickly. So we paid the state for 24 hour turnaround time and it's not cheap. And you know, now the client, here we are a week later and the client's given us all sorts of hassles because we told them we could get it done quickly.
So we call the state and we say, Hey, we paid for the 24 hour turnaround time. What is going on? And they say, well, we're just doing the May, business stuff that came in during May at this point. And we said, May. Well, we paid for 24 hour turnaround time. You know, if you're just working on May, why, why are you not getting to us?
Well, we'll get to you. Well, can we have a refund of our, you know, money that we paid for the 24 hour turnaround time and this state laughed at us. I mean, that's, you know, talk about the states having all the power. And they said, Nope, you
[00:19:00] know, when we get to our June business, then, we can, you know, put you to the front of the June business, but we're still doing May business here. So, I, I understand people get busy and everything else, but, it just struck me as really funny. I don't get like, like being laughed at, and spending money for nothing. But, that's, that's what the states told us. So, remember the states have. All of the power and things often take a lot longer than you expect.
So make sure that you're giving yourself plenty of time, even when you hire an expert like us, sometimes we get stymied also, even with our connections and workarounds. Sometimes you just hit that brick wall and you have someone laugh at you. Now we're not going to leave it there. We'll follow up and we'll, we'll find a way around it and we'll get, get it back as quick as possible.
But, it's just a fact of reality when you're dealing with, with the
[00:20:00] government. So, that's my, off topic, bit of, advice or story I'd like to share today. And, you know, I want to thank everyone for joining us and, that, we hope to see you on the next episode of the Sales Tax and More podcast.
And, Ellie, you want to close this out? Yeah, absolutely. And I also wanted to add in my, we, we really don't have to dig hard for these stories. They fall into our laps. They're happening all the time. We're not just saving up stories that we can, we can share them with you as soon as we can. They're really happening all the time.
They're not, they're not that rare. So, and that being said, I will close this out, Mike. If you have sales tax needs, we do offer many solutions and services. We touched on a few of them here today, but you can see the services that we have available on our website. You can reach out to me directly. If you have questions about them, my email is E Moffat E M O F F
[00:21:00] A T at sales tax and more. com. Our website is sales tax and more. com. In addition to those services, we have a lot of resources that are free information available to the public. We have charts, we have updates, we have these podcasts, we have live webinars, blogs, many, many things. And we'd love to hear from you if you have questions about those as well.
And please subscribe to this podcast if you like it. And thank you so much for listening. Thank you very much. And, CereTax at C E R E T A X. If you want more information on them, just reach out to Ellie. She'll get you their information. So, and we'll put it in the show notes as well. So you can have that link easily.
Great idea. Well, thanks everyone. Have a great day. Bye bye.