At Miles Consulting Group, our mission is to ensure that our SaaS and technology clients are fully informed about their sales tax obligations and the risks that arise when nexus is created.
There’s no doubt that automated tax software solutions can be extremely valuable when implemented, integrated, and managed correctly. But software is not always the simple, streamlined solution it appears to be.
When used too early or in the wrong way, it can create more issues than it solves.
We understand that as a SaaS or technology company, you’re likely inclined to see software as the answer, after all, it’s the business you’re in. But when it comes to sales tax, software alone won’t solve everything.
Too often, clients come to us after the fact, after they’ve purchased and implemented automated sales tax tools and tell us they wish they had come to us first.
In this article, we’ll break down exactly where software can help, where it can’t, and what you need to get right before you invest.
Is software ever the complete solution for sales tax compliance?
Let’s be clear up front: at Miles Consulting Group, we’re not anti-software. In fact, we often help our clients select and implement the right tools and when used properly, they can save considerable time and reduce human error.
Clients want to categorize what they’re selling, apply the correct state tax codes, and automate filings. Tools like Avalara, Anrok, and TaxJar provide a way to do this and in principle, they work.
But here’s the problem: in most cases, those same clients assume that once the software is in place, it will manage their entire tax situation. That assumption of “set it and forget it” is rarely correct.
Software doesn’t fix sales tax problems, it automates what you already understand.
In fact, a significant portion of our consulting work is spent cleaning up problems created by software that was purchased and implemented too early, or configured with the wrong inputs.
What does automated tax compliance software actually do?
There are plenty of high-quality tools that, when correctly integrated into your ERP or billing system, can:
- Identify potential nexus triggers based on transaction data
- Apply relevant tax codes and calculate sales tax in real time
- Automate filings and remittances
These tools act as a front-end tax engine, streamlining your workflows. But, and this is critical, they are only as good as the data and assumptions you feed them.
If your company hasn’t correctly determined where it has nexus, or if it applies the wrong product categorization, the software will still process transactions, it just won’t do so correctly. It can result in:
- Tax being collected where it shouldn’t be
- No tax being collected where it should be
- Past exposure being ignored completely
Most tools also do nothing to address retroactive sales tax obligations and that’s where many companies run into trouble. Applying software and rushing to file when retroactive liability exists can exacerbate the problem. You can’t “software” your way out of liability that already exists.
Not sure if software is right for you yet? We offer a complimentary review to help you assess potential exposure before you get into the weeds with software set up.
Understanding your sales tax profile, before buying software
This is the core issue. Software works well after you’ve done the groundwork. But it won’t do that groundwork for you.
Software can be of great help once you understand your sales tax situation, have figured out where you’ve created nexus, and cleaned up any past exposure. But if you’re not clear on your unique circumstances, no software will save you.
Before working with us, many of our clients don’t know their:
- Current nexus footprint (physical and economic)
- Product/service taxability in different jurisdictions
- Whether existing contracts comply with evolving state laws
If these foundational questions aren’t resolved first, software may speed up the wrong process and make things worse.
We recommend working with an advisor first to:
- Assess where you should be registered
- Review and resolve any past exposure
- Build a roadmap for automated compliance going forward
Only then is it time to invest in software.
Need help getting clear on your past exposure first? Book a complimentary review.
The value of working with a consultancy
Many companies assume that buying sales tax software is the end of the compliance conversation. But often, it’s just the beginning.
Our clients often find themselves stuck once they realize that the software they’ve purchased can’t help them figure out where they have nexus or when they created it, whether they’ve collected the right amount of tax historically, or how to remediate past mistakes.
Nobody wants to pay twice: once for software, and again to fix what it broke.
At Miles Consulting Group, we help SaaS and technology companies:
- Evaluate nexus status and registration requirements
- Analyze product and service taxability across jurisdictions
- Review contracts to ensure compliance with emerging rules
- Implement efficient systems for tax calculations and filings
- Stay current with changing SaaS sales tax rules
- Properly apply tax coding within a software platform
We don’t just help you plug in a tool, we help you build a framework that ensures the tool actually does what you need it to do.
Want to see how to get started? Sales Tax Compliance for SaaS Companies: A Step-by-Step Guide
In our step-by-step sales tax compliance guide, we walk you through the right sequence:
- Identify nexus and exposure
- Resolve historical issues
- Choose software that supports the right compliance model
If you’re still figuring out where your risks lie, start there.
The First Step Is a Nexus Review
If you’re considering implementing sales tax software, or already using it, the most important question is: do you actually know where you have nexus, when it started, and what your historical exposure might be? Because the software is not going to tell you this.
This is where most companies go wrong. They automate before they understand their sales tax profile and that’s how they end up paying twice: once for software, and again to fix what it missed.
That’s why the first step in our process is always a nexus review.
It’s a focused diagnostic to help you:
- Identify where you have a taxable presence
- Evaluate whether you’re properly registered
- Understand if you have any retroactive exposure
- Decide what kind of software (if any) fits your needs
If you’re serious about avoiding costly mistakes, this is where to start.
We offer a free 30-minute nexus consultation review to assess where you’re at and suggest your next step.
Send us a message if you’d like a second opinion on your current approach.
