Thursday, May 29, 2008

Outsourcing of transaction tax compliance

Over the years companies have found outsourcing of important business processes such as recruitment, payroll, finance, training, HR etc. as a strategic and effective alternative that saves time, money and resources. Outsourcing of taxation related processes in companies to third party vendors is the next big thing happening in the outsourcing arena.

Transaction tax compliance is a burdensome process for companies. To give you an example, in the United States alone, there are more than 13,000 tax jurisdictions and each year the tax laws change more than 1,000 times. This makes it extremely difficult for companies to track tax rates and manage tax payments to the government for various transactions done at various jursidictions having different tax laws. Thus, while making sales in a particular geography, a company (that is operating over multiple geographies) should know about the prevailing sales tax, use tax and tax laws of that geography so as to account it in the tax amount to be paid to the government.

Failing this (or variations happening in tax payments due to not accurately tracking sales tax and use tax rates), companies have to face penalties, audits and other legalities from the tax authorities. This shows how important it is to ensure transaction tax compliance by a company, eventhough the process is unwieldy. That's where taxation compliance outsourcing becomes important.

A good example of a firm that do outsourced transaction tax compliance is Sabrix, with it's Managed Tax Service (MTS) that offers tax compliance solutions to small business and mid-market companies (they also have a demo of the application at

Outsourcing tax compliance to firms like Sabrix has lot of advantages. It would eliminate the hassles (tracking tax rates of various geographies etc.) associated with tax compliance. The payments to tax authorities will be accurate and timely due to the expertise of the firm as it is dealing only with such things (core competency). Above all, there is a cost advantage to it. As a result companies can concentrate more on its core business. Few more reasons to outsource transaction tax compliance can be found here.