How to choose a sales tax partner
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 discuss the intricacies of selecting a sales tax return service provider. They emphasize the importance of choosing a provider that can handle all necessary filings, including those with specific state requirements and challenges, such as Colorado's local taxes and Oklahoma's vendor use tax. The conversation covers the pitfalls of relying on software solutions that may not file certain taxes or disclose all necessary information, leading to potential penalties and interest charges.
Here’s a glimpse of what you’ll learn:
Criteria for Choosing a Sales Tax Returns Provider
Provider Capabilities and Limitations
Client-Provider Communication and Support
Notice Management and Tax Remittance Verification
Connect with Michael
Episode Transcript - Audio Version
[00:00:00] Intro: Welcome to Sales Tax More, your go-to resource for all things state tax-related. Now, here's your host, Michael Fleming.
[00:00:18] Mike: Hi, Mike Fleming here, founder of Sales Tax More. Today's co-host of the Sales Tax More podcast, where we talk about everyone's favorite topic, which is, of course, sales tax. And today we're going to talk about how to choose a provider to prepare and file your sales tax returns. We call that our STARS service, sales tax return service, and we do a lot of this. So, I might be a little bit slated when it comes to providing the information, but I'm going to try to be as fair and balanced as possible here. I'm going to give you a lot of good information that you need to be asking yourself when you're looking at potential providers. But before we get into that, let me introduce you to my co-host Ellie Moffat.
[00:01:06] Ellie: Hey Everyone, great to be here. And I'm going to do a quick introduction for Sales Tax and More, our company as well. But before I do that, Mike, I did want to add in, you know, people have had us come and speak to them about this topic at the IPT, and I think I'm totally drawing a blank, but I believe somewhere else as well. It's been a popular topic whenever we bring it up on our social media. I genuinely think that this is helpful to people, whether we are slated or not. So this is definitely worth staying with us and listening. So Sales Tax and More for those of you who don't know, is a full-service consulting and solutions firm. We have a really great team here of experienced tax professionals who are very dedicated to fulfilling any of your state tax and related needs. So we do a lot of sales tax returns. We do sales tax registrations, consulting, research, audit defense, exemption certificate management, and like our name states more. So if you have questions about our services or you want to work with us, you can always reach out. We'd love to hear from you and we would love to work with you. So Mike, let's just go right in here. I know this is going to be a lot of information on your end today. What is the first thing someone should consider when interviewing a potential sales tax returns provider?
[00:02:29] Mike: Yeah and Ellie, before I get into it, but I agree with you. Very, very important topic here. So, we are going to be fair and balanced. What's most important to me is can the provider file all the returns you need to file or want to file? And what I mean by that is, You know, I'm going to pick on a couple of different companies there. But TaxJar, historically could not file the Oklahoma vendor use tax. So they were telling people to just go out and change their registration to the Oklahoma sales tax, which is a whole other can of worms. We can talk about that and the sales tax nightmares, but they couldn't file it for whatever reason. So they were telling people to change their registration, which, in my opinion, is never a good idea. Now, supposedly, they currently can't… they may still have that problem in Oklahoma, but we've been hearing a lot about Colorado; the Colorado locals, TaxJar, just can't file them. So if you have a responsibility to collect and remit in Colorado, you want to be working with a provider who can actually file those. Who can file all of the returns that you actually need.
[00:03:48] Now, Avalara, we're going to pick on them right now. They can file anything you want them to file, but their salespeople are really pushing the streamlined sales tax program. It's their most, from what I hear, it's their most profitable product right now because the states are paying them. Now, a couple of things with that: they're going to get you registered a lot of times in too many states because they figured you're not paying for it. The state's paying them. So what do you care? Well, there are reasons to care, but again, that's the sales tax nightmares. Let's talk about it for sales tax returns. In general, when someone files the Washington sales tax return at the very top of it there's a space for the business and occupation tax. So whoever's filing your sales tax returns, files, the business and occupation tax, same person, gets it all done. Just about all companies do it that way, including Avalara, when they're not using the streamlined sales tax program. The streamlined return has no place on it for the business and occupation tax. So, that has to be filed separately. And in the very, very small print of the agreement you signed with Avalara, it tells you that, but the salespeople, which many of us rely on, will never mention it. They're usually telling you you don't have to worry about anything. Just sign up with us, and we'll take care of the rest. Well, no one's filing the business and occupation. So you got to ask about those things. I mean, we get companies calling us all month long. That they're being contacted by Washington.
[00:05:29] They've got three, four, five years worth of business and occupation tax and owe six figures and the penalty in Washington is 39 percent. So you want to make sure that someone's filing everything that you need them to file. Same thing with the local jurisdictions. So especially in the states, well, just in the states of Colorado, Arizona, Louisiana, and Alabama. Alabama, not such a problem. Arizona not as big as a problem, but we're hearing lots and lots of problems in Louisiana and Colorado, and they're just not getting filed. And we see multiple clients coming to us. I mean, I joke around, and I say that we should actually be paying these software companies referral fees, because we ended up getting so much business that come to us to fix the problems that are happening, but three years of tax collected and not remitted. And, you know, you got this company who's actually collecting the tax. But not remitting it and not making a special report. I mean, buried somewhere in there. It says it. But again, if the salesperson tells you, Oh, just sign up with us, you don't have to worry about anything else. You think that everything's being handled.
[00:06:53] Unfortunately, it's not always the case. So, most important, make sure that your provider can file all of the returns that you want them to file, and there's no special charges, no special fees, no special programs or add-ons that you have to do with the program they are actually signing you up for.
[00:07:19] Ellie: Okay, so great points here, Mike. What else?
[00:07:22] Mike: Well, who's your point of contact going to be? Under contrast here with us, you're talking to the person who is actually filing your sales tax returns. You have the ability to talk to them now, maybe not during the busiest time of the month. You can send them an email, and they'll get on the phone with you before or after the busiest times of the month. I mean, if you have one day left to file returns. Probably not going to stop down and talk to you, but at least they're doing it the rest of the month. Whereas with these other companies, it's almost never going to be the person who's actually doing your returns. It may be a customer service person. Who is going and talking to the people who are actually doing your returns, and something gets lost. It's like the game of telephone. That's the way that Avalara used to do it, and they had so many problems. They went to a typical software company solution. They went to if you have a problem or a question, you got to open up a trouble ticket. Now, I don't know about you, but I never liked the process of opening up a trouble ticket. Maybe it's worked for you, but it's never worked for me in the past. Forget about software. Just, you know, in general, I don't like the whole process of opening up a trouble ticket, but that was their solution. That was going to be how they got better at giving you a point of contact. They sent out an email that said, yeah, you can no longer talk to your contact about these issues.
[00:08:55] You've got to open up a trouble ticket. So, you know, what process is there for problem resolution? Because there are going to be problems. I mean, we're all human; mistakes happen. So it doesn't matter which company you're working with. It's never going to be 100 percent error-free. And I don't think that you want to define someone by the by their problems, by their errors, but how they respond to those problems or errors. Are they responsive? Are they working to get it fixed? Is the process making the problem worse? So I don't want to say we're never going to make an issue, but I think that we're easier to talk to to help get some of these problems corrected. Another… notice management. A lot of these companies are going to tell you, Oh yeah, we, we've got a notice management system, and their notice management system consists of telling you. Oh, there's a problem here, and there's a notice and you got to go and fix it. That's really not notice management. That's notifying you that you got a notice, but that's not notice management or keeping it in one place for you to be able to go out and see it and fix it.
[00:10:12] To me, notice management is not only number one; if you never know about it, that's a good thing. Notice management is making sure it's fixed. Now, no matter how efficient you are, the states are not efficient. So you could have done everything correctly. And the state saying we didn't get this, or we didn't get that And then you just have to contact the state and you have to show them the documentation.Yeah, you did. Here's the confirmation. It's here. It's prior to the cutoff date. And then that notice goes away. If you don't respond to the notices, then they start getting bigger and attacking interest and penalties on top of the interest and penalties. And it can be quite the problem. So, who exactly? Is managing the notices. Do you have to do it, or are they going to do it on your behalf? So, what is the notice management process? I think that's real, real important. Here's another one. And we touched on this earlier. Who confirms all the sales tax collected is actually remitted. And with a lot of these software companies, you know, they have specialists. You got one person doing all of the Alabama returns, another person doing all of the Colorado returns, and another person doing all of the New York returns. With us, you've got one staff accountant who's doing all of the returns. The reason why I think that's so important, besides the fact that you can pick up the phone and call that person and actually talk to them, they get a feel for your data. They get to see everything. They can spot potential issues before the state spots them sometimes, or before you, or before three, four, or five months go by with no one taking a look at it. So, to go three years when you're the one actually collecting the sales tax and not making an issue and telling your customer… software companies have customers.
[00:12:18] Not telling your customer that there's an issue and that tax is being collected and not being remitted. So, who's staying on top of that? Software companies are going to say you're responsible for staying on top of that. Well, there's a small point to that. But with us, we're staying on top of that. We're, we're helping you and not only are we catching where tax is being collected and not remitted in states where you're registered. Lately, what we're finding is it's so easy to turn sales tax on in a lot of these systems. And a lot of times, it's not the tax people who are turning it on, maybe. You know, whoever is responsible for entering new products into the system, they see something and say, oh, turn on the tax. And they do; they don't tell anyone else. And now you're collecting tax, and you're not registered. No one knows about it. So these are the types of things when that tax is being collected; who's making sure that it actually all gets remitted to the state. So I think that's really. Really important, Ellie.
[00:13:27] Ellie: Yeah. And you know, Mike, just to kind of reemphasize some of this here, even just who is your point of contact is a huge deal to our clients, understanding who you're going to be in contact with, what is exactly going on is a bigger deal than it might sound just saying it here. It makes a big difference for people with us and for whoever they choose to work with. So you're on a roll, Mike. Anything else there anything else you want to add in here?
[00:13:56] Mike: Yeah, and you just said something that made me think of something, you know, it's not only about tax collected, not remitted, but when you have one person who's doing everything. If every month, you're sending in $100,000 worth of tax, and all of a sudden, one month you're sending in $90,000 worth of tax, but your sales are actually the same amount. Should that not raise a red flag? Should that not raise a question? So, just like it's really easy to turn the tax on in states, sometimes it's really easy to turn the tax off in a state. And if you have someone paying attention to your accounts, you know, over time, You have a staff account. They get to know you. They get to know your company. They get to know your data. They get to see patterns. There are lots of things that can be caught in the very early stages. So it's not just collecting too much tax. Sometimes it's not collecting enough tax. What happened here? Why is, for the state of New York the amount of tax a third of what it normally is. And the sales are the same. So if sales are down, tax would be down. But if the sales are the same and taxes are down. There's an issue, something else. Let's let's switch gears. Do you care if your provider is preparing the returns themselves or brokering the returns? Sometimes, you know, you got these software companies coming out and saying, you too can be a sales tax expert.
[00:15:25] So long as you use our software. And what happens a lot of times is someone's getting your data and they're, sometimes they're disclosing to you that they're having someone else prepare their returns. Sometimes, they're not. Sometimes, they're just outsourcing it to one of these software companies and the software company doesn't provide them with enough support. So something happens, and all of a sudden, they're scratching their head because they haven't been doing this for years. They don't have the resources to answer your questions, and Avalara certainly doesn't provide that. So it's, do you care if whoever is, you know, maybe it's your local account, and maybe they're doing your returns, but they're actually brokering them out. Do you care? And you may not care. That may not be important to you. That's something that some people want to know. Along those same lines, is your data going to be protected? Some of these companies actually outsource it overseas. They send it to companies like Pakistan, The Philippines, and all sorts of different companies out there that have low wages, and they can get this done for a cheaper price.
[00:16:42] Me, I've always felt uncomfortable about that. That's my personal preference. You may not care, but I do care. So, I've made a commitment to our clients that we will never send your data overseas. We're not going to send it to one of these other countries. I don't care what country it is. Yeah, our, our fees are. Our costs are going to be a little bit higher. We're not going to be as profitable as some of these other companies. However, I can sleep at night knowing that your data is protected and that it's not leaving our control. Who tracks online messages? Again, this, Ellie, this seems like a small thing. But a lot of times, states don't send regular mail, they don't send emails, they post notices or they post information in the online accounts. If you have no single person who's responsible for looking at these things, Who tracks it? Filing frequency changes. Who's the one that catches that there's been a filing frequency change? Do you have to wait for a notice that says, hey, you missed the last four months of returns or last five months of returns? Or can you see in the account that the state is saying, hey, you've gone from a quarterly filer to a monthly filer? Or you've gone from an annual filer to a monthly filer, or whatever that change is, someone should be tracking it. And, you know, you can be the one responsible for it. But if you're outsourcing, why not have the person you're outsourcing be the one who's checking the accounts and who's staying on top of this?
[00:18:24] I think that's really important. Also, what method does the provider use to balance? And when I say balance, if you've ever tried to remit a sales tax return, if the numbers don't match up with what the state is expecting, you can't hit the submit button a lot of times. So sometimes you have to balance. And there are lots of reasons why maybe when you were calculating the rates, there was a wrong zip code or a digit was off, or maybe your system was using an older rate, whatever it is. How do you make that fit with what the state is looking for? Now, I'm going to pick on TaxJar again. TaxJar used to do what's called a forward calculation. In other words, they would run all of your data. Through their system and tell you, here's what you should have collected. Now, who's to say they're right? In the big scheme of things, texture was the new kid on the block. You know, they worked with smaller sellers usually where, you know, a company like Amazon is using Vertex. Vertex has been around forever. They're one of the Cadillacs in the industry when it comes to, you know, rates. So, who's TaxJar to say Vertex is wrong and that you need to use our rates? And a lot of times, they didn't even tell you there was a difference. They just made you file based upon the numbers that they calculated, and they ignored
[00:20:00] Your data, which leads to two things. Number one, you're remitting a lot more tax than you may have collected, or you're not remitting enough tax. And now you get tax collected, not remitted. And we would have companies come to us all the time and say, hey, my accountant just said, You know, ask me, why did we collect $20,000 less than we've remitted to the states? Well, it's because of that forward calculation. We had one client come to us; they were evaluating us and TaxJar, and we told them, hey, here's what you need to look out for. Well, while we were registering them, because TaxJar at that point, I don't know if they do now, but at that point, they weren't doing registrations. We do a lot of registrations for all companies out there. They were…Tax Jar was filing in California for them, and in one quarter, there was a 7,000 error. It was exactly what we told him to look out for. If we hadn't told him to be on the lookout for it, then he wouldn't have seen it. We ended up getting all of the business there.
[00:21:05] Now, there are other companies, especially if you're a smaller company; you may go your entire existence and never experience any problems with some of these companies. But you need to be aware of the issues so you can if you see something that doesn't look right, know, oh, okay, this is what Mike Fleming was talking about. I gotta look into this a little bit harder now. So, forward calculation, that's what they're doing. In other words, they're not looking at what was actually collected; they're telling you, or they're actually taking the money out of your bank account as to the amount that they think you should have collected. With us, we balance to two numbers, gross sales and tax collected. So you'll never remit, you know, there's going to be some minor discrepancies, but you'll never remit a dollar more than you've collected because we're balancing to tax collected. The two most important numbers we believe when an auditor comes in and looks at your numbers are what do you grow sales?
[00:22:05] They don't want to see any deviations from other places. You're reporting gross sales, and what's the tax you collected? Are you remitting all of the tax that you collected? So those are the two numbers that we balance too. Now, this is a little bit off-topic, but I want to say this. A lot of times, we hear complaints and you know, people say, well, Avalara can't tell me why my numbers are not matching to the penny. Well, they're never going to match to the penny. We see a lot of accountants and bookkeepers who don't understand sales tax, and they're going to blame it on the provider. And, you know, the reason why it's never going to match, and now I'm sticking up for the software companies here is because you collect in dollars and cents. But you know, when their sales tax returns get remitted, they get remitted in whole dollars. So you're either rounding up or rounding down. So that's going to be one of the reasons why there is a difference between what you collected and what's being remitted. Another one is a lot of the states offer early payment discounts, or they call them seller discounts or vendor discounts. And so long as you're paying your taxes on time, they're going to give you a certain amount of money. Some states, you know, it's a decent percentage. Other states are going to cap it at like $25. Now, that's another question. Before I move on here, another question is who's keeping those discounts. You want to make sure that those discounts are being passed on to you. You don't want your provider to be keeping the windfall of that money. With us, we obviously make sure it's passed on to you. Now we do something else that's a little bit different. We actually prepare. In the beginning of the month, when we do our funding request, we're going to base the funding request on the actual tax that you collected.
[00:24:09] Okay? Then we're going to file your returns, and each amount of money that gets permitted is generally going to have a deviation. So, we're going to tell you what the deviation is and why the deviation was there when we do the reconciliation at the end of the month. So the beginning of the month tax collected, end of the month tax remitted. Here's the difference. Here's why. Rounding difference. Early payment discount or vendor discount. So whoever is doing your books and reconciling, you know, the sales tax liabilities account, they know why it's not matching to the penny. And I don't care what company you're with; you get these people who are very good with numbers, and when they don't match up, they have a hard time. So that's not the software company's fault. That's just the way that returns are filed with the states. Now, is the software company making it any easier? Are they providing you with a report that shows why there's a difference? That's what we believe sets us apart in that area. But in defense of the software companies, it's never going to match to the penny. So that's a question. What reports are available? What, what are you providing us to make our lives easier to help us balance our books and Ellie? You know, I could go on and talk about this all day long. You know, there are lots of things that we really want to look at, but I think I've hit most of the big ones here. And, you know, Yes, I'm a little bit biased, but whether you come with us or whether you go with someone else, these are the types of questions you need to be asking. You need to be asking us, and you need to be asking, the software companies or the brokers or the accountants out there these same questions.
[00:26:06] Ellie: Thank you so much, Mike. I think that this is an incredibly helpful episode. And, if you thought so too if you enjoyed it, please like, subscribe, follow along with our podcast, and help us get the word out about it to more and more people. And if you have sales tax needs, we talked about one solution a lot today, but we have many solutions and services. You can reach out directly to me at emoffat@salestaxandmore.com. Or visit our website, salestaxandmore.com, and ask us any questions you might have. We also have a series of free webinars to offer CPE credit. We have state tax charts and matrices and a lot of helpful information out there as well. So thank you so much, Mike. Thank you everyone.
[00:26:56] Mike: And Ellie, I'm going to end on a really bad pun here. Our stars team, our sales tax return services, which we call stars are a bunch of stars.
[00:27:07] Ellie: And I'll cut, I'll cut them off for you guys.
[00:27:10] Mike: Goodbye everyone. See you on the next episode of the Sales Tax and More podcast. Bye bye.
Outro: Thanks for listening. Be sure to hit subscribe and check out all the resources we have out on the web.