The Importance of Understanding Tax Software Functionality | Expert Discussion

Hello guys. Welcome to another video from your SALTovation team. I am Tram Le. We have Stacy Roberts, Alex Korzhen, and Meredith Smith with us today. We decided to chat about software providers and kind of walking through what you're buying and really emphasizing the importance of understanding. And the functionality of the software you're getting as well as the service and support that you may or may not get.
But we really want to hash some of those important issues out today. So, I'm just going to kick it off and I guess kind of the introduction of sales tax software, there are a lot of providers out there and they do promise you a solution that helps you manage your sales tax as well as managing the filings and the reporting.
But in our experience, we have seen variations in the different providers in what you are getting. The pricing, , the level of service from managed services, which is a term I think we'd want to dig into a little bit today, as well as, I mentioned earlier functionality on the filing and reporting.
If a service provider is providing you that as well. So, No. Who will, who wants to speak on any of those topics where I can chime in on any of that? No. Okay. I will start off because I am the one who really was geeking out on this. This is the Tram show today because I've just had a lot of clients dealing with a lot of different vendors trying to figure this out and helping our clients give them the best.
Recommendations, right? And helping them select the, the right provider. So, kind of one of the first things I mentioned is pricing, right? Understanding what you are getting. And what I've seen here is you, you get a lot of different, I guess, pricing, in terms of like, some might be based on transactions, some might be based on both revenue and transaction.
And then we have also seen some in terms of like a customized pricing because it is just not clear, right? How these software providers are, are going to charge you for the software itself as well as the additional service and support that comes along with it. So, I think that's one of the biggest thing where depending on what kind of business you have, if you're an e-commerce provider or a seller where your transactions might be, large, you have a high volume transaction business and you're selling low dollar items, right?
Obviously, your revenue may not be super high, but you have a ton of transactions. So in some cases, providers will charge just a ton for that high vol e transaction. And so what I've seen and heard in terms of discussions with clients and other business providers is that where if we're looking to recommend a service provider today, right, like based on what they're doing what their existing sales look like.
Pricing to me, I, what I've seen is it's pretty comparable from vendor to vendor, but if you're going to kind of do a forecast projection as to, Hey, in five to 10 years, this is what we're, we're thinking our sales and vol e will be. That price range usually varies because of this pricing strategy that, that varies.
So that is one thing I wanted to mention. Well, and I think too, you've got to. We can appreciate the fact that you are looking to do something now. But to a long, kind of piggyback off what Trey is saying, you really need to kind of understand what your future may look like. You may be a QuickBooks user now, but let's say in a couple years, you're going to integrate to a more sophisticated GL system. , does whatever product you pick now from a sales tax collection software, does that integrate with maybe what your future is? What do you anticipate growth being? Where if it does come to that transaction base where are you going to be in that growth period?
And also, what kind of. Business are you going to get into, right? Because we've found that some software solutions work better with certain industries than others. And so, do you think in a, in the future you're going to also tack on a swag store to your software as a service? Because you are, for whatever reason, right?
So while pricing and integration happens now you also need to take into account what you, what your future may look like. And that is hard to think about. Now, if you're just trying to kind of just get your hands around the idea of like, all right, we're going to do, take that net step and do something for a software for a sales tax.
But then what is it going to look like coming up or in the future? You mention a really good point, Meredith, in terms of kind of analyzing the specific business itself. Because along line, along the lines of pricing is also kind of the taxability decisions that support what you're selling.
Because like today, if a company is selling SaaS, right, and the software provider does have all the taxability, taxability codes and decisions to support that, but they're going to expand into like digital goods or any other area that the software provider isn't equipped to support. I think a lot of the times the question is what do you do?
In some cases you have to figure it out yourself, meaning you have to custom code. Or B, the software provider might or might not be willing to do the research and provide you those tax decisions. So I've kind of seen a little bit of both Stacy and I were just doing we have a really great relationship with one of our software as a service clients, and every time they're thinking about doing something new, they let us know so that we can kind of assist them in product taxability and they are, Thinking of implementing a kind of reintegration fee to try to incentivize customers to not let their contract expire.
And so they're going to tack on like a percentage fee for kind of reinstating their contract. And we could not find kind of in the law even too, what the, what the taxability of that kind of reinstatement fee is. But certainly they didn't have an appropriate taxability matrix or a code. That aligns with what they are selling.
And also what we've found is that it's really important that your vendor make available to you what the tax decision is Behind that kind of product assignment is so that you can validate what you're going to be taxing for your customers. And you can really get to the bottom of, okay, if I add this product code 1 2 3 45, I think it should be taxable in New York. Is it actually going to be taxable in New York? Another? Yes. And I would also add, we see a lot of differences with the software providers on the jurisdictions in which they will collect. And Meredith and I specifically being in the fund state of Colorado with all of our home rules, if we have clients that need to collect in the home rules, not all of the software providers might be able to do that.
So it's really important for companies to understand kind of their footprint and the jurisdictions in which they are selling into. and specifically locals. And we see some of this also in the SAS space with like the city of Chicago having a specific tax around that. And so just, uh, urging our clients to really kind of understand that footprint and what they what, so what software can support where they are selling now, I think one of the common threads here is.
What the system can do versus what sales or marketing is, uh, presenting, right? During the sales process or even the bidding process. Some companies will, and this is specifically true in cloud services and the software space where there's really a lot of nuance from the taxability perspective and in all these different products the law is pretty vague and if not vague and consistent, amongst the states. So, one sales process or salesperson will frame as we've simplified the software process by reducing the codes. Well, that sounds great, but maybe that is the positive spin on less granularity, right?
Whereas having more codes may be more technically accurate, but you'll tear your hair. trying to figure out which one you, you fit into without having that background. So, it's just there's a lot of sales that goes into this and, and, and kind of have to be mindful of the spin that it's putting on it.
I mean, that's kind of stating the obvious, I think, but worth saying no, along those kind of the same lines of the sales process where I mentioned earlier the term manage services a. Software companies are pushing that out as a company who don't have their resources or the expertise to handle some of the functionalities, like the exemption certificates and the filings.
A lot of these sales tax automation companies are pushing like a managed service tier option for, for clients and it's not that clear what they're actually going to do or the, the level of service. So, and, and I think. A salesperson might tell you; they will help you handle it. They'll help you make sure it's right.
And you do not have to worry. But I guess again, where they're setting up a company with the wrong tax codes because it wasn't granular enough, right? As they're going through and saying, these are the tax decisions, or these are the exemptions and they've managed it, on audit, those things don't really matter that you have someone.
A software company managing it, if it's not charging the right amount of tax or properly exempting it at the end of the day, taxpayers on the hook for it. So I think it's super important to really have kind of that perspective in, in shopping for vendors.
Yes. And on that I find it also kind of just really difficult to get some. Understanding of even what their kind of professional, well not professional services. That's what we do, that’s a whole other episode that I think you can probably find in our feed. but what, what exactly those charges for services are.
And I don't think that the information put out there is really, is, has been done very well to understand what that charge is. And that's going to be one of your reoccurring charges year over year. And it's going to go up. And I do not know that the value is always there on that kind of annual renewal fee for services.
Because realistically, if I. If I buy a software product, I should be able to call someone and make sure that it's working, regardless of if I pay a service fee because I'm paying for a software license that should be working. So you really got to kind of dive into that detail, like tram said. But it's also hard to get the information and it's not readily available.
So I guess more of the story is get some professional help, meaning professional services that. People like us can help our, our businesses, our taxpayers, and the business community in figuring out what you're buying as opposed to relying on what the salespeople are telling you in, in the sales.
Yes. It is process. So, we are having, quick story time. We are having a parent-teacher conferences kids. I got young kids and one of our questions is thanks for the feedback, but is this normal ? How does this compare a across my kids' peers, right? But I think that same analysis could be applied here.
Is if you don't have, if you're not working with somebody who has that across-the-board experience right? Then, you are not sure if the information that you're hearing from the sales. From one of these providers is, is appropriate or not? So, let us step into the shoes of, of my kids' teachers and, and, and help you understand if, if what you're being told is normal or not.
Nicely said, Alex. Thank you. Thanks, you guys. This is such a powerful, wonderful analogy, Alex. Super important for us to understand our children and our clients at the same time, right? Everybody on this call has young kids, so we are all nodding here. We get it. I'm crying in the background.
Well, appreciate you taking the time to discuss this important topic. Hopefully, the next time we gather we'll have some good news to share because hopefully we're spreading our knowledge across America. So, thanks everybody. Bye.
Thanks all. Take care.