Just about everyone, whether they’re a business owner or not, can remember a recent experience with paying sales tax for a purchased item. For most people, the experience of paying sales tax seems so automatic. For some business owners, this simply isn’t the case.
According to a recent study, 34% of retailers still use a manual approach when calculating sales tax. While it may not seem like that big of a deal to continue doing it this way, many of them have no idea of the kinds of long-term compliance risks they open themselves to when they don’t make automated sales tax processing a priority.
If you’re a business owner still manually calculating and collecting sales tax and you would like to know why automation should be your next move, this guide is for you. In the next few sections, you’ll learn how automated POS software can help you save time, avoid unnecessary penalties, and provide your customers with the best experience possible.
Sales tax is considered an indirect tax. This means that citizens do not give this money to the government from their own income. Instead, they simply pay a percentage of the total when they purchase goods and services.
Retailers providing those goods and services collect the tax on the government’s behalf and then send the money to the government periodically. The tax is calculated as (sales tax percentage / 100) x total price of goods and services.
There are a few different types of sales tax. States usually charge a flat rate sales tax that applies in all jurisdictions across that state. However, many local municipalities, such as cities and counties, also charge a local sales tax which must be calculated and paid in addition to state sales tax.
Some local governments charge special district taxes in order to fund services (including sports stadiums and transportation) not offered by the greater municipality.
Sales and use taxes are obviously very complex matters. To add to that complexity, they are governed by compliance laws that carry hefty fines for businesses that do not adhere to them. Relying on manual processes to calculate and collect sales tax is not only incredibly tedious, but it has the potential to introduce errors that put a business at unnecessary risk of noncompliance.
The good news is that, in this age of digital transformation, businesses no longer need to take the manual route. Instead, POS software can assist with sales tax management without a finance team or business owner having to lift a finger. This software does much more than just calculate or process payments. Many POS platforms also provide:
Additionally, you’ll get real-time updates for changing tax laws. This is critical for business owners selling taxable goods and services, as tax laws shift frequently while compliance requirements leave no room for errors due to a lack of knowledge.
These POS software features afford business owners some significant advantages over a manual process. First, many will notice improved accuracy in their tax calculations, which further reduces their exposure to compliance risks, including expensive penalties and the scrutiny of audits.
Furthermore, business owners will enjoy the benefit of saving time, as automated sales tax processing is much more streamlined than the manual route. This, in turn, means more scalability and adaptability for growing businesses.
Finally, automated POS software allows business owners to create a better experience for the customers they serve each day. This is because the software allows them to provide accurate and transparent pricing, letting the customer know up front what they’ll pay for their goods and services so they can make informed decisions.
It’s important for business owners to know that not all POS software platforms are created equal. As you consider selecting a POS system for the sales tax process, ensure that your chosen platform will integrate with your existing systems.
Not only do you need a solution you can run on your current hardware, but you need to know that your POS platform won’t interrupt your workflow by making it difficult to get things done.
Also, you’ll want to make sure that your POS system provides support for multiple locations and tax jurisdictions. This ensures that your company will always be compliant no matter where your business takes you or where your customers are ordering from.
If your chosen POS software platform only runs on expensive and hard-to-maintain legacy systems, you may want to think about switching to a cloud-based solution. While applications that require on-premises infrastructure can be expensive to maintain and are quickly outdated, cloud-based platforms provide a seamless experience with easy updates and the benefit of having a third party maintain the necessary infrastructure.
Additionally, a cloud-based POS platform affords business owners the benefit of enhanced data security and compliance. Most cloud software providers are able to provide rock-solid security for your sensitive data, significantly cutting your risk of data breaches and the penalties, expenses, and loss of reputation that accompany them.
It is worth noting that many business owners choose POS systems based on their industry. For example, Lightspeed was created specifically for retailers, while Toast and TouchBistro were designed for restaurants and food trucks. Some well-known POS software options that any business can use include PayPal, Helcim, Stripe, Clover, and Square.
Once you’ve chosen a POS software platform to use in your business, make sure you’re implementing it the right way by taking the following steps:
When you follow these steps for proper implementation, you’ll ensure that your business is set up for success and able to reap the maximum benefit of your new software solution.
Some of the most well-known businesses use automated POS software, including Nike, Instacart, Wayfair, and Lyft. These large-scale brands understand how important sales tax processing is for a business. If you’re a business owner, you should, too.
Not only does POS software protect your business from compliance risks, but it simplifies and streamlines tax calculations and collections in a way that saves time and increases productivity. If this sounds like something your business needs, consider adopting an automated POS software solution and experience the wonders of efficient sales tax management.
Learn more about what Dive Shop 360 can do for your business.