Why state and local governments need to future-proof their sales tax processes with technology

Just over a year ago, state and local governments were forced to address the public health crisis created by the COVID-19 pandemic, adding additional responsibilities including dealing with the stress of relying on paper-based processes.

Across the United States, a large majority of state and local governments manage tax processes—from issuing licenses to receiving tax returns to issuing notices—in a paper-based manner. When tax employees were sent home, those tax authorities faced the challenge of managing a tax process that was completely paper-based.

State and local authorities can use technology to future-proof their tax processes while driving efficiencies and maintaining operations during disruptive events.

After the pandemic, governments will need to adapt to a new reality, which includes changes to service delivery and pace of regulation. The post-pandemic era will be one of more technology adoption at the state and local level to enable government to work in an environment that is more flexible, agile, and prepared for continuity in the face of disruption.

To effectively future-proof their processes, tax authorities must embrace technology that eases interoperability and seamless data exchange, creates the ability to work securely in a real-time environment, and scales from a single operator to large, enterprise businesses.

Modernizing with electronic registrations and filing
While e-filing is a common process among state governments, it is not among local governments. Today, even when digital formats are used for tax registration and returns, the process can be time-consuming and cumbersome.

The pandemic drastically increased the use of e-commerce but less than half of businesses surveyed indicated that they were fully compliant with tax filings. When authorities get those businesses in compliance, it will mean a deluge of net-new sales tax returns filed by businesses, increasing pressure on existing government systems and processes which are too often paper based.

Simplifying the process using trusted data sources
Governments and businesses leveraging the same technology would save enormous time and resources but everyone using the same software is an unlikely outcome.

Points of friction can be reduced by creating trusted relationships that limit the need for auditing and validation—all while ensuring tax authorities are receiving the most accurate tax collections each time.

Shared standards become the data that powers the platform that effectively becomes a centralized source of truth for businesses and governments alike.

Automating the exchange of tax information
Governments and the tax industry have long worked together to standardize and encourage the electronic exchange of tax information. Success will require greater efficiencies from the financial systems government and businesses must rely upon.

The concept of integrating tax technology between business and government doesn’t apply to just certain aspects of the tax compliance journey. Integrating tax technology could instantaneously issue a license to a business, automatically enabling a business to begin collecting sales tax.

As more commerce takes place digitally, state and local governments will need to modernize their tax processes to keep pace. Authorities should take a forward-looking approach to exploring tax technology so that they can address the issues of today and tomorrow.

The future of tax compliance is one that prioritizes efficiency and operates on a centralized and openly available technology to readily exchange data to instill trust in all stakeholders. To make this a reality, governments and businesses will need to integrate their tax technology to reduce the need to connect disparate systems, reduce complexity, and increase compliance.

Summarized from Americancityandcounty.com

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