Moderated by Emily, Digital transformation Consultant at Hyperbots
Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant at Hyprbots. I’m really pleased to have John on the call with me, who is the VP of FP&A at Extreme Reach. Today, we’ll be discussing sales and use tax compliance, which is an area that often flies under the radar but has significant impacts on a company’s bottom line and operations. So, John, let’s quickly dive into the topic. I’d like to kick things off by asking, what are some of the compliance risks companies face if incorrect sales or use tax is charged by vendors?
John Silverstein: The impact is significant, and it affects your customers too. If you’re not passing it on, or you’re not registered in the right states, and your vendors aren’t compliant, then, if they go through an audit, they might start charging you sales and use tax. This actually happened with one of my clients recently, where we had to go in and make sure there were adjustments. There are a lot of gray areas, which makes it hard to stay compliant and understand the rules, especially since they’re constantly changing, particularly as technology evolves. With SaaS environments, for instance, states vary on whether it’s considered a service or not. Everyone has been trying to figure out: is it a service or isn’t it? Having AI support compliance by state makes it very complex.
Emily : Understood. Also, John, could you explain why incorrect tax charges lead to cash flow disruptions?
John Silverstein: It goes back to compliance. If you’re not compliant, you can incur penalties, which can end up costing more than the sales tax itself. Sales tax rates can be quite high in some states—I’m in New York, where sales tax is closer to 10%. Non-compliance can impact your customers, who may not want to continue services, and it also affects your credibility. If you have to pay both sales tax and penalties due to an audit, it can be very disruptive to your cash flow.
Emily : Understood. How do you think tax compliance affects a company’s reputation with stakeholders?
John Silverstein: It affects everyone because there’s an expectation that you should know and manage tax compliance accurately. Larger organizations may assess sales and use tax on themselves, but everyone is essentially trusting each other in this environment. If you’re a vendor collecting sales tax, and you’re not doing it correctly, it can raise concerns. To maintain credibility and look professional, it’s crucial to stay on top of tax compliance.
Emily : Understood. Talking about best practices, John, what are some best practices for ensuring accurate sales and use tax compliance within an organization?
John Silverstein: There are several key practices. One is regular tax reconciliation and invoice reviews. For example, each month, we might review a sample of invoices to ensure tax calculations align with the latest rules. You could also use a program to do this since rules change, or new cases arise that impact tax obligations. If you’re a reseller, you should be tax-exempt, so it’s important to have the correct exemption certificates. If you’re not checking every bill in a large organization, you might not realize you’re being charged taxes when you’re actually exempt. This creates room for error, and many companies overpay their sales and use taxes.
Emily : Got it. Could you provide examples of automated tools or processes that help with tax compliance?
John Silverstein: There are various tools, including tax compliance modules in ERP systems. There are also add-ons like TaxJar and Avalara, which are popular with smaller businesses. Some large accounting firms also offer services to keep companies tax-compliant. It’s critical to get both software and professional tax advice due to the complexity of these rules. Tools like Hyperbots can automate compliance by applying specific state rates using AI to categorize invoice items and identify tax obligations accurately. This reduces manual intervention and human error, which is key because, without a tool like Hyperbots or specialized tax software, it’s hard to stay compliant. AI is particularly useful because it’s constantly updated, whereas legacy tools rely on your descriptions, which may not always be accurate.
Emily : Got it. So, John, can AI help companies keep up with changing tax rates and rules across jurisdictions?
John Silverstein: Absolutely. AI can not only monitor rules and regulations but also adapt to changes that aren’t always reflected in the regulations right away, especially as sales models shift to subscriptions. For instance, in New York, if tax rates are adjusted, AI can detect these changes and update the system to apply the correct rate for each transaction. AI can also monitor legal rulings that determine whether something is taxable, which helps companies stay compliant and avoid penalties.
Emily : Got it. To round off the discussion, John, what are some challenges companies face when implementing AI for tax compliance?
John Silverstein: One challenge is that AI doesn’t have full judgment capabilities yet, so it requires human oversight. For instance, in Michigan, SaaS services recently became taxable, but this isn’t always explicitly stated in the regulations. Often, AI assists, but it may struggle with vague or evolving legal definitions. These ambiguities can make it difficult to interpret compliance requirements, especially as court rulings continue to define these regulations.
Emily : Understood. Thank you so much, John, for sharing these insights. It’s clear that accurate tax compliance is vital for financial stability, and AI offers exciting possibilities to make this process more efficient and error-proof. I really appreciate your time and expertise. Thank you.
John Silverstein: No problem. Thank you for having me.
