Source: Aberdeen Group, May 2017Sales and Use Tax Compliance for Software Organizations Regardless of size, today’s software organizations are significantly challenged in the quest for Sales and Use Tax (SUT) compliance, as they continue to evolve their businesses, create new product offerings, explore new business channels and expand geographically. The risk of noncompliance is substantial, as software companies are outgrowing manual processes and a patchwork of technologies that negatively impact performance. This executive summary showcases data collected by the Aberdeen Group, revealing the complex challenges software organizations face today in indirect tax and providing a roadmap for sidestepping the increased difficulty to come in the future.Compliance can impact the bottom line and hold software organizations back from focusing on their core business goals. With aggressive growth goals, investment and proper allocation of resources is critical to support organizational growth. Lackluster compliance can be a significant barrier with software organizations indicating the average penalty per audit is $106,293, with some spending as much as 2% of revenue on compliance related penalties and interest. Software organizations must remove the hurdles from SUT compliance, minimizing the time spent on research and tax workflows, to keep costs low, maintain accuracy and continue to expand their businesses. REPORT HIGHLIGHTS» The top challenges for software organizations today are inefficiency of current indirect tax compliance process and business evolution (i.e., mergers, divestitures, new business lines/products, and online sales)» 73% of software organizations believe audit frequency will continue to increase» Leaders (Top 35% of respondents based on performance - vs Followers, bottom 65%) are 57% more likely to have a complete Sales and Use Tax compliance solution» 58% of software organizations centralize Sales and Use Tax compliance» Software organizations with SUT solutions saw significant improvements in the time spent on individual tax workflows and the time it takes to complete an auditFUNCTION: Tax: 41%Finance: 36%IT: 36%Other: 7%C-Level, VP (Functional Head): 36%TITLE: Specialist, Analyst, Manger (Department Team Member): 30%Director, Manager, Controller (Department Head): 33%Other: 2%$100m - $500m: 16%$50m - $100m: 9%REVENUE: More than $2 Billion: 19%$1-2 Billion: 9%$500m - 1 Billion: 12%Under $50m: 34%DEMOGRAPHICSEXECUTIVE SUMMARYSoftware organizations that generate between $100 million and $1 billion in annual revenue are 55 percent more likely to have seen an increase in audit scrutiny and frequency over the past two years. These businesses are at risk of being negatively impacted by SUT compliance in ways that can hinder their growth such as cloud delivery of their software and M&A activity.3%20%20%24%36%0%10%20%30%40%OtherOpportunity cost of the drainon internal teamsAudit penalties from inaccuratefiling (known liability)Reputation damage / Lostcompetitive advantageAudit penalties from not filing(unknown or missed liability)Software OrgsPercentage of Respondents, n = 79» Centralize compliance. Centralizing compliance enables your organization to leverage a single tax technology to improve accuracy and enable processes that can be managed with fewer employees. Centralization improves performance with greater efficiency rather than duplicating efforts across locations.» Invest in technology. Through a sales and use tax compliance solution, you can rely on the expertise and capabilities of the software vendor to automate complex processes and ensure consistency, greatly lessening the burden on compliance and IT teams.» Facilitate research. One of the hardest parts of managing compliance is understanding when tax regulations change. This research can be time consuming. Using a sales and use tax solution, your organization can have the confidence that it’s always up-to-date with the latest regulatory analysis.Survey takers indicated their top three challenges that make avoiding these risks difficult. These challenges vary from the cost of supporting audits and the inefficiency of current processes to changes in business models as a whole, such as the introduction of online sales.» Automate workflows. Top performers are more likely to automate the process from beginning to end, utilizing technology that automatically calculates sales and use tax, manages exemption certificates and integrates filing and remittance.» Be prepared for audits. If your organization has a centralized database featuring all necessary transactional information, these processes will go more smoothly and cost less. Full data visibility will allow you to easily establish KPIs for your process performance while simplifying the process of satisfying auditor requests so you can be confident that compliance is achieved.OVERVIEWKEY TAKEAWAYS AND RECOMMENDATIONSIncreasing Complexity of the Sales and Use Tax (SUT) Regulatory EnvironmentTime Savings with a SUT SolutionTASK REDUCTION IN TIMEDays to prepare for and complete an audit42%Hours per employee dedicated to researching tax rates6%Hours per employee dedicated to filing / remittance33%Hours per employee dedicated to technology or infrastructure updates / maintenance1%Hours per employee dedicated to managing / preparing for audits16% Source: Aberdeen Group study commissioned by Sovos, May 2017 www.sovos.comBiggest Risks in SUT ComplianceNext >