How to Outsource Sales Tax Compliance for Startups

Launching a business startup is exhilarating.

However, a critical aspect that many entrepreneurs overlook is managing sales tax compliance (especially if they’ve registered their businesses for taxes in multiple locations).

Keeping up with sales tax laws across multiple states and countries, filing returns on time, and tracking tax rates can quickly drain your time and energy.

The good news is you don’t have to do it alone. In fact, you shouldn’t! When you outsource sales tax compliance, you can focus on what truly matters — growing and running your business.

SaaS companies know this well; they’re often built by using other SaaS products to automate specific processes within their operations. That’s exactly the case with sales tax compliance for SaaS companies.

Let’s take a closer look at the ins and outs of sales tax compliance, why outsourcing this responsibility can be so helpful, and how to choose the right service to streamline your tax management operations.

What is Sales Tax Compliance, and Why Is It Important?

Sales tax compliance means following tax regulations that require your business to collect, file, and remit sales tax to the appropriate state or jurisdiction.

Sales tax laws vary between states (and countries), with different registration thresholds, tax rates, product exemptions, and filing deadlines. If your startup sells goods or services across state lines or internationally, it can be a daunting task to manage compliance properly.

Taking sales tax seriously as a new startup is important because:

1. Proper compliance is a legal requirement. Failure to comply can result in costly penalties, interest, and even audits.
2. Compliance helps your business build trust. It fosters trust with customers and keeps a clean reputation with tax authorities.

Benefits of Outsourcing Sales Tax Compliance

You can manage sales taxes in-house or outsource them to professionals.

While managing in-house may seem doable initially, outsourcing can help prevent those pesky, costly mistakes and save you time. You cannot scale with manual tax compliance, and it's not worth it to build in-house!

Here are some of the top benefits of outsourcing sales tax compliance:

Prevent Penalties

Missing a sales tax deadline or filing incorrectly can trigger hefty fines and penalties. Tax professionals train to stay updated on sales tax regulations. This helps them keep your startup compliant with new laws so it doesn’t get penalized.

Reallocate Resources

If your startup is like many others, you may be operating with a lean team and limited resources. That means every hour you spend managing your sales tax obligations is an hour you’re not spending on growing your business.

Also, there's no need to devote developer time to building an in-house tax compliance solution. It's simply to complicated if taxes are not your core offering.

Outsourcing helps you free up internal resources so you can focus on those core business functions, such as:

• Scaling your operations
• Product development
• Customer acquisition and success

To put this in perspective, think about your company’s human resources (HR) responsibilities.

As your team expands, handling payroll and benefits will get more complicated. You’ll eventually need to consider investing in trusted HRIS software or an outsourced HR team to make sure you’re compliant with the Fair Labor Standards Act (FLSA) and other laws.

Similarly, sales tax compliance needs expertise that many new businesses may not have in-house. When you partner with experienced professionals, you can streamline your reporting processes and keep accurate tax records without investing your hard-earned time and internal resources.

Minimize Non-Compliance Risk

Navigating (what feels like a maze of) sales tax rates, exemptions, and laws is a full-time job.

The risk of errors is high, especially for startups without specialized expertise. Outsourcing to professionals with a proven track record helps minimize the risk of non-compliance. Since experts stay ahead of changes in tax legislation, your filings are more likely to get filed accurately and on time.

Protect Your Business Reputation

A poor compliance record can damage your business’s reputation, especially with customers and authorities. Late filings, errors, or non-compliance can lead to unwanted audits and public scrutiny.

Outsourcing can help you protect your startup’s reputation as a trustworthy business that follows regulatory requirements.

In-House vs. Outsourced Sales Tax Compliance for Business Startups

Managing sales tax compliance in-house often seems like the cheaper option, but the complexities can quickly add up.

For example, if you’re running a Georgia LLC, you’re dealing with favorable tax rules, like the corporate tax rate of 5.75% — but you also need to be aware of state-specific exemptions and job tax credits that can impact your filings. This complexity can be a lot for a small team to handle.

Outsourcing sales tax compliance, on the other hand, provides peace of mind. Outsourcing partners can offer automated processes, real-time tracking, and professional expertise to manage business sales tax obligations with minimal hassle.

Plus, outsourcing can help your startup scale without worrying about the growing complexity of managing sales taxes in-house. Again, as your sales volume and geographical reach expand, outsourced services can support your growth without you needing more internal resources or infrastructure.

What to Consider When Outsourcing Sales Tax Compliance

Before jumping into an outsourcing solution, it’s essential to consider your startup’s unique needs and sales tax obligations.

Here are some key things to factor in:

1. Provider Expertise

Choose a service provider with the proper specialized expertise in sales tax laws across multiple jurisdictions. (Ideally nationwide, statewide, and internationally.) Make sure they have a proven track record of handling complex tax scenarios, including economic nexus tracking and complying with sales tax in multiple states at once.

2. Integration Capabilities

Look for an option that integrates well with your existing systems. These may include e-commerce platforms, payment gateways, and other accounting software. The more smoothly these systems interact and share data, the easier it will be to automate processes and reduce manual work.

If you have bit more tech savvy, look into whether the product offers an API that you could customize and build directly into your app. For example, the Quaderno API allows developers to integrate our tax engine in just a few lines of code.

3. Customer Service and Expertise

Don’t choose an outsourcing partner solely based on cost. A cheap solution may not have the expertise or customer service necessary to manage complex tax obligations or answer your niche questions. Check to make sure the technology is backed up by a knowledgeable, service-oriented team!

4. Scalability Capabilities

Consider whether the sales tax compliance service can scale with your business.

As your startup grows and enters new markets, your compliance needs will expand. Partner with a provider that can adapt to your changing requirements so you can count on smooth transitions over time.

More on scaling in a bit.

How to Choose the Right Sales Tax Compliance Outsourcing Tool

Here’s how to pick the right sales tax compliance outsourcing software for your new business:

Technology and Infrastructure

Make sure your sales tax compliance tool can scale and adapt to your business’ tax needs. Look for platforms that offer automation, real-time tracking, and integration with your existing systems.

Expense management tools can help you track and control outsourcing costs. Funnily enough, some tax compliance software also offer accounting and expense management, such as Quaderno!

Customer Support and Compliance Guarantees

Excellent customer support is non-negotiable. When tax deadlines approach, you need to know that you can rely on your provider for quick responses and hands-on support.

Some providers also offer compliance guarantees — meaning they’ll cover any penalties or fees incurred due to errors on their part. This is a huge safety net for startups.

Service Offerings

Look for comprehensive service offerings that align with your startup’s needs.

The provider should (at minimum) offer:

• Accurate tax calculations
• Real-time tax reports to help you file returns
• Secure document storage in case of audits

Quaderno for Outsourced Sales Tax Compliance

If you’re looking for a reliable sales tax compliance outsourcing partner, Quaderno is a smart choice.

Quaderno simplifies the tax calculation and filing process across multiple jurisdictions to make managing sales tax obligations easier.

We also provide sales tax liability tracking in real-time, sending you alerts when your business needs to register in a new place — and we automatically calculate taxes based on the latest sales tax laws, so your business stays compliant.

Quaderno also generates sales tax reports and helps you file tax returns in mere minutes, reducing the burden on your team and the costs of a tax advisor. Plus, the tax engine integrates with your existing tools, so you can look forward to a simplified transition to outsourced tax compliance.

Final Thoughts on Sales Tax Compliance Outsourcing

Outsourcing sales tax compliance is a strategic decision that can help your startup free up valuable internal resources and avoid non-compliance risks.

From reducing the possibility of penalties to focusing on core business activities, the benefits of outsourcing are endless. And when you partner with a provider like Quaderno, you can breathe easier knowing that your sales tax obligations are in expert hands.

Ready to make your life easier? Try Quaderno for free today and take the first step toward stress-free outsourced sales tax compliance.

FAQs

1. What does outsourcing sales tax compliance mean for startups?

Outsourcing sales tax compliance means hiring a third-party provider to manage tax calculations and filings and ensure your SaaS startup meets regulatory requirements.

2. Why should startups outsource sales tax compliance?

Startups should outsource sales tax compliance to save time, reduce errors, and avoid penalties. Outsourcing also helps startups focus on core business activities while experts handle their sales tax filing obligations.

3. How much does it cost to outsource sales tax compliance?

Costs vary by provider and the complexity of your sales tax obligations. Many services offer scalable pricing based on transaction volume or business size.

4. What are the risks of not outsourcing sales tax compliance?

Handling sales tax in-house increases the risk of mistakes, missed deadlines, and non-compliance.

This can lead to costly fines and audits.

5. How do you choose the right sales tax compliance provider for a startup?

Look for providers with expertise, integration capabilities, scalability potential, and strong customer support. It’s also important to look for one with a data security guarantee, since your business and customer data will be stored within their app!

Thanks to Catalina Grigoriev from Planable for sharing her expertise and writing this article for us!