Getting started with implementing tax can be a potentially confusing process, even more so if you don’t have a background in it. This multifaceted process involves coordination among various teams across your business, such as sales, accounting, and operations, each requiring tailored preparation.
To help you prepare your internal team for a smooth and successful path to compliance, this guide covers the practical issues to consider when implementing a sales tax solution.
Review your customer contracts
Ensuring that your customer contracts include terms that specify and clarify that your pricing is exclusive of any indirect taxes is an important part of a smooth compliance transition. It's likely that your contracts already contain this type of provision, but it is prudent to double-check if you need to revise your terms.
Below is an example of the type of language that your business could consider including:
Check with your legal team to see if your current terms and conditions are sufficient or if additional language may be appropriate for your business.
Communicate new jurisdiction taxability
It is important to ensure that your internal team is clear on what jurisdictions will be taxable to customers and when. This clarity will ensure that the entire team, from sales to customer support and accounting, is prepared should any questions arise from a customer. We recommend doing the following:
Formalize a communication process for when your business achieves nexus in additional jurisdictions. Your team will need to stay abreast of changes and where sales tax will be charged to your customers.
Consider sending out an email or posting to an internal wiki page for your company when a new jurisdiction is taxable. Be sure to note the first-date transactions will be taxable so your team is clear on when the change will occur.
Implementing these strategies will ensure that your company's evolving taxable jurisdictions will be clearly outlined to your internal team and the customers they communicate with.
Begin collecting addresses during onboarding
It is important that your customer onboarding or sign-up process now includes gathering your customer’s address. As a seller, you are obligated to gather your customer's location so that you can properly charge and collect sales tax. Without an address from your customer, your business may become liable for the sales tax due on the invoice.
Tip: Check out Anrok’s guide Why is sales tax so hard to get right for SaaS? for more information on address requirements, which are particularly cumbersome for sales tax in the US.
Ease pricing concerns
A common concern from businesses is that charging tax may cause customers to churn. At Anrok, we have seen many sellers considering this issue and have overwhelmingly heard that SaaS software is not price-sensitive to the addition of tax to invoices.
- United States costs — In the US, with an average tax rate in SaaS jurisdictions that exceeds 6%, the cost of non-compliance increases that rate by up to 11%.
- International costs — In international jurisdictions, the average cost of non-compliance rate is upwards of 20%.
The money that is saved by charging customers for tax can be reinvested into your business to hire more engineers and salespeople or invest in other projects.
As with any important project, preparation is a critical step to success. Implementing a global tax solution when your business is still small can help reduce the amount of time and effort required for preparation while change management is easier to execute.
Regardless of size, Anrok can help your business grow by guiding you through the process of getting tax implemented for your business. If you have any questions about preparing your internal team to charge tax, feel free to contact us at email@example.com for more information.