Challenges with Sales Tax and VAT Compliance Software
Tax compliance solutions can come with their own set of challenges.
Accurate inputs: Tax compliance software does a good job of filing tax returns and making rate determinations, assuming the information is entered correctly. All software requires some sort of human interaction and input, which can lead to human error. VAT compliance software output is only as good as its inputs.
Legal questions: This software can answer all types of questions that relate to using the software, but most platforms don’t answer legal queries due to liability reasons.
Tax determinations: Compliance software provides a rather long list of tax categories the user must pick from which can lead to incorrect tax determinations. Unfortunately, this type of software can’t make tax determinations for the user because each instance is different and unique.
Pricing: This type of software is known to be expensive, and usually includes additional subscription, onboarding, and implementation fees. Software buyers need to do their due diligence before purchasing tax compliance software because they will most likely have to enter into a contract that could span several years.
How to Buy Sales Tax and VAT Compliance Software
Requirements Gathering (RFI/RFP) for Sales Tax and VAT Compliance Software
When selecting sales tax and VAT management software, it is important to first look at what type of tax system(s), exemptions, and integrations a company needs to support and manage, and then familiarize oneself with the different types of software available. The geographical location of the business should also be considered because tax systems vary from location to location. There are a variety of options when it comes to tax management software, including those designed for SMB and enterprise size organizations.
Compare Sales Tax and VAT Compliance Software Products
Create a long list
A long list should include all options that may provide the buyers with the functionality they need. Depending on the country that the organization resides in/or pays taxes in, this list might include solutions that can help with local and federal rules and rates, tax collection and filing, and integrations with other accounting and transaction tools.
Create a short list
After reviewing and researching the software on the long list, the buyer can widdle down this list based on the budget. Tax compliance software is available to suit all budgets and some general tax applications may be downloaded free or bought off the shelf at a lower price.
Buyers must keep in mind, however, that the more specialized a software is, the more expensive it gets. This is the case because the user base for specialized software is usually relatively small. If the company wants something specific to their industry or customized for the business, they should be prepared to pay a premium.
Conduct demos
Companies should make sure to demo all of the products that end up on their short list. During demos, buyers should ask specific questions related to the functionalities they care most about, for example, one might ask to be walked through all of the remittance features, how to run reports for audits, or how to import financial data from other systems.
Selection of Sales Tax and VAT Compliance Software
Choose a selection team
The accountants, controllers, and support teams who will be using this software must be involved in the selection process. The accountant may prefer an application that is compatible with the ones they currently use. Every business is different and the accountant or controller is most likely in the best position to offer an educated opinion about the best choice for the particular needs of the business. The controller may even be able to help the company install and set up the software of choice.
After choosing a software, buyers must remember that they don’t have to be stuck with this selection forever; most platforms allow for add-ons or modifications. However, this decision shouldn’t be made lightly because no matter what software is chosen, it will be a big time and money commitment. To see ROI, buyers can’t change their minds a few months later and switch software again.
Negotiation
Negotiating a software contract is important to minimize risk, whether it is in terms of performance protection, security protection, or simply making sure that both parties are in complete agreement with what to expect from the other.
If the business has cash flow, they could ask for a discount in return for an annual upfront payment, and many software providers are happy to make that deal. Other times, a software provider may offer unlimited usage if the buyers pay upfront instead of paying a monthly or quarterly package price.
Buyers should also determine if they will need help implementing the software or integrating it with another system. Usually, a software provider's first offer will include some implementation services in a given timeframe. Buyers can ask for these services to be removed if they can manage it themselves, or if a third party can do it for cheaper.
They also need to decide for how long they will need this software. If the company is planning to use the software for several years, the buyer can negotiate longer terms of contract which sometimes results in more favorable pricing.
Final decision
The final decision should be based on all the information gathered previously. Businesses should try to prioritize needs and select the solution that meets most of, if not all of, their requirements. Companies must remember that there is no one perfect software, but there is one that is best for their business.
If possible, buyers must conduct a pilot program with a smaller sample size of users to gauge how well the software is received. If the platform gets high marks, they can buy with more confidence. If the tool is found to be inefficient or not performing as expected, it might be time to test another software.
