Remote vs. Built-In Sales Tax Engines

If you have a small retail shop and you make all your sales in person in one town, you might be able to use a simple tax table. Find out your local tax rate and multiply that by your sales to calculate the amount of sales tax to collect, and you’re set. If you have multi-state sales or even sales in multiple municipalities, you need a sales tax engine with a robust tax rate database.

You have two choices: a remote tax engine or a built-in tax engine. Which one do you need?

Built-in sales tax engines

If you use a point of sale system or accounting software, you probably have a simple sales tax engine. Many software packages have a sales tax engine. It’s part of the code used to build the software. They may also have their own tax rate database. For example, one very popular accounting program has a tax rate database with 40,000 data points.

That may sound like a lot. Sales Tax DataLINK’s tax rate table has 1.6 million data points. That actually is a lot. As we’ve often said, sales tax is complicated. A smaller database will not give you the same level of accuracy as ours.

But there are big advantages to built-in sales tax engines.

  • Greater control. As you’ll see when you keep reading, remote sales tax engines have a lot of moving parts and there are a lot of fingers in the pie. You have no control over how often their sales tax rates are updated, who provides the services, or even how much you pay.
  • Unlimited use. Since your software includes the sales tax engine, you don’t pay for each individual calculation. When you use Sales Tax DataLINK, you pay a flat rate and you can have thousands of invoices. As your business grows, you may need many more calculations, and that is no problem.
  • Flat rate. Regardless of the number of calculations and invoices, you pay one predictable price. That may be one fifth or even one tenth of the cost of a remote tax engine.

Sales Tax DataLINK provides a massive database to the sales tax engine of your ERP. Think of it as rocket fuel for your tax engine.

Remote sales tax engines

Many software solutions offer a remote sales tax engine in addition to the built-in option. A specialized sales tax company will have a very powerful tax engine. When you ring up an invoice on your POS system or your accounting software, the software calls the remote tax engine through the cloud.

The remote sales tax engine then goes through its cloud chain. For example, it will send your customer’s address to a subcontractor who finds the location and sends it to Google Maps to be verified. Then it goes to another system to determine taxability, then it uses a rates table to determine the correct rate for the item you’re selling in the place where you are selling it. 

Finally, the information returns to the sales tax engine, which returns it to the invoice. This all happens very fast — in seconds. Your invoice shows the amount you should collect for sales tax.

And you probably get charged for every calculation. This can include calculations made by a customer who is checking to see what their shipping will be or finding their total before they actually make the purchase. Not only will you pay a fee for every invoice, but also in most cases for every calculation. 

Not to mention a variety of other fees. You won’t know how much you will owe the software company each month. Usually, they will automatically debit your corporate credit card account and you may be astonished at the total. 

Which is better?

Your ERP tax engine is smart. All you need to make it work perfectly is smart data. Our calculations using the data in your ERP will be just as good as the best remote tax engine’s — at a better price.

We will provide you with a demo of our software using your data. Call now! 479-715-4275.


Image courtesy of Adobe

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