The Changing Landscape for Sales and Use Tax Strategies
Key Considerations for Manufacturers
A landmark 2018 Supreme Court decision, South Dakota v. Wayfair, Inc., opened up more companies to the responsibility of paying sales tax to states, allowing states to enact economic nexus laws, even when organizations don’t have a physical presence in the state. In addition, manufacturers are investing in ecommerce as part of a new market strategy to improve customer experience, which complicates sales and use tax collections. Online sales have risen rapidly, resulting in a significantly greater need to track, collect, remit and defend sales tax payments for a myriad of possible jurisdictions. In cases where manufacturers don’t need to collect sales tax, they should be collecting and managing exemptions from customers to be able to defend their decision.
“We may not have to collect sales tax, but that doesn’t mean we don’t have to file everywhere. I don’t think people have an appreciation for the amount of work that goes into managing sales and use taxes. It’s a big challenge for us.” – VP Tax, Transportation Equipment Manufacturer
Manufacturers Alliance, in partnership with Sovos, conducted survey research and executive interviews to gain a greater understanding of trends in sales and use tax compliance, as well as the strategies that manufacturers are using to reduce risk and make filing and compliance more efficient.
Five findings reflect key considerations for leaders making sales and use tax-related decisions.
Improving efficiency in sales and use tax compliance (64%) and integrating sales tax technology (52%) are key priorities for manufacturers.
These two areas were the top two selections by far among survey respondents when asked what their key sales and use tax priorities were for the next year. Given the increase in sales tax jurisdictions that companies may need to file with after the Wayfair decision, it’s not surprising that manufacturers are struggling with streamlining and automating sales and use tax processes.
Business strategy or technology change adds considerable complexity to sales and use tax compliance.
Overall, 44% of executives reported that changes in business strategy (e.g., M&A) added the most complexity to the sales and use tax compliance process. Technology (e.g., migrating to a different ERP system) change followed at 35%.
There’s still work to do in streamlining sales and use tax processes.
Nearly two-thirds (67%) of executives noted that reducing manual effort in the sales and use tax process was their top priority for the next year. Additional streamlining priorities, such as integrating tax information from different systems, streamlining the compliance process and reducing dedicated tax resources for compliance were also key priorities.
Sales and use tax audits are increasing.
The Wayfair decision and states’ desire for additional income have created the environment in which executives are forecasting an increase in the frequency of sales and use tax audits for manufacturers, with 78% anticipating more audits in the next 12 to 36 months. While 22% forecast the same level of audits, it’s perhaps telling that none forecast a decrease in audits.
Investing in additional technologies and analytics is the top strategy that executives are selecting to expand sales and use tax compliance.
A majority (51%) of executives stated that they were investing in additional sales and use tax technology as their most important strategy over the year.
Download the full report to see how manufacturing companies are managing sales and use tax compliance in their organizations. From compliance trends to strategies for increasing efficiency and reducing risk, the data collected in this report can help guide organizations to an optimal sales and use tax strategy.