We’ve all heard the Benjamin Franklin adage: “In this world, nothing is certain except death and taxes.” I’ve always joked that we have a better chance of solving death than we do taxes, and I really believe that’s true.
Tax has confounded people for more than 5,000 years and has only gotten more complex as our technology-driven society has become truly global. There are more than 13,000 sales and use tax jurisdictions in the U.S. alone. In some states, like Missouri, there are additional tax rates for things like food, utilities and more, on top of the general sales tax rate. Beyond the breadth of rates, how goods are defined also creates complexity. For example, while technically a fruit, dried cranberries are often sweetened, which means they are categorized and taxed as “candy” in approximately 24 states. The complexity of tax is far-reaching and costs businesses an exorbitant amount of time and money every year.
Not only has complexity grown exponentially over the years; the scope of work for those managing tax has also increased. Those who manage tax are no longer only responsible for understanding tax codes and rates. These individuals and teams must also better understand what a business sells, how those sales are made, where inventory is kept and more, because they all have implications for a business’s tax obligations.
Think about this for a moment. Today’s omnichannel, global business is made up of numerous moving pieces that keep sales flowing. Each one of those moving pieces has a direct impact on the tax obligations for business. Selling through a marketplace in the U.S.? Now you need to understand how marketplace sales impact your nexus (an obligation to collect and report tax) thresholds. Breaking into the Italian market? Now you need to understand Italy’s e-invoicing rules and how to use their e-invoicing platform. The scope for managing tax is expansive and is costing businesses real money. A 2021 survey found that midsize businesses spend an average of $17,000 per month on tax compliance activities. This is why automation has become critical for tax management in our digital world.
Automation has freed businesses and tax professionals from the completely manual processes that have dominated tax management for centuries. This technology has allowed humans to step away from manually calculating tax on every transaction, preparing and placing paper tax returns in the mail, and more. Automation has allowed businesses to recoup time and save money — all while improving their tax compliance.
The benefits of automating tax compliance are widely acknowledged today, but that hasn’t always been the case. As with any application of technology to a traditionally people-managed task, there have been concerns about automation replacing humans, eradicating jobs and the like. But the reality is that automating tax doesn’t replace humans — it allows us to focus on other areas that actually provide value to business. So, if automation has taken the pain out of tax, what promise could artificial intelligence hold for it?
There is a distinction between traditional automation and AI that’s important, especially in the context of tax management. Automation removes humans from loops that they don’t need to be in, while AI enables us to put humans into the loops they do need to be in. Just like automation, AI helps to remove manual processes and burdens, but its comparative advantage is that it can also enable us to focus on and execute our best work.
AI not only removes tedious manual efforts of tax compliance, but it helps us better understand changing tax rules, shifting tax footprints, and evolving areas of risk to our businesses. Unlike traditional automation, AI learns as it goes. This means AI can help businesses and tax professionals. Tax automation technology platforms can more easily and quickly manage changing tax rates and rules. AI can pull tax data from countless forms to streamline the management of tax documents and returns forms. With AI adapting alongside tax as it continues to change, businesses and tax professionals can free up their time and resources and be empowered with even greater certainty in their tax compliance.
When my fellow co-founders and I came up with the idea for Avalara 20 years ago, we knew that manual tax compliance in a digital world was absurd. What we didn’t know is just how much technological innovation would take place in such a short amount of time.
Our pursuit then was to make tax less taxing and more relaxing. That mission hasn’t changed, but with AI, we now have the tools to help take tax from a costly regulatory checkbox to a function that delivers positive impact on efficiency and revenue, as well as help drive insights for business decision-making and forecasting.
Businesses should never be bogged down by the burden of tax compliance. Automation has helped untie the hands of many leaders and professionals from manual tax management. Now AI will put the power of added intelligence into the heads of those same people to ensure their companies are here in the future.
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