Midsized businesses spend 163 hours per month on sales tax compliance, typically costing more than $17,000, according to a new survey.
The survey, by NetReflector-Potentiate in conjunction with tax compliance software developer Avalara, polled both small and midsized businesses in the early months of this year focusing on businesses in the manufacturing, retail, and software industries. The vast majority of the small and midsized businesses surveyed (90%) file 10 or fewer sales tax returns annually. Four out of 10 companies surveyed (41%) file most of their returns on a semi-annual basis.
The results point to the heavy costs of sales tax compliance for many companies, both big and small.
The vast majority of the smallest companies with less than 20 employees (97%) remitted less than $500,000 in sales taxes last year. Among small and midsized businesses with between 20 and 499 employees, 78% remitted between $100,000 and $3 million in sales taxes.
Again the vast majority of the smallest companies (92%) have three or fewer employees involved in sales tax compliance. Among those with 20 to 499 employees, approximately two-thirds (68%) have two to five employees involved. The average number of employees involved in sales tax compliance tended to be slightly higher among manufacturing and retail companies as opposed to software companies.
The estimated average hourly wage for an employee dedicated to tax management among all the businesses surveyed was $90. The total estimated hours per month spent on tax management activities among all the businesses surveyed was 147. For the smallest companies with under 20 employees, the estimated hours per month were 131 hours, while for the businesses with between 20 and 499 employees, the average was 163 hours, a 24% increase over the smallest businesses.
The total number of estimated hours per month spent on tax management activities varied by industry, with the retail industry being the highest. For the software industry, the average was 121 hours. For the manufacturing industry, it was 149 hours, 23% more than for software companies. For the retail industry, it was 209 hours, 40% more than for manufacturing companies.
Among all the businesses surveyed, the total calculated cost (the number of hours spent multiplied by the cost per hour) was $14,811 per month. For the smallest businesses with fewer than 20 employees, the total calculated cost was $11,968, while for businesses with between 20 and 499 employees, it was $17,672, a 48% increase compared to the smallest businesses.
The total estimated costs per month also varied by industry, with the retail industry having the highest costs across all activity categories. For the software industry, the average was $11,113. For the manufacturing industry, the average was $14,256, 28% more than the software companies. For the retail industry, the average was $24,032, 69% more than manufacturing companies.
Sales tax audits were also common, with 14% of all businesses surveyed claiming to have had a sales tax audit in the past five years. Manufacturing companies had the highest audit rate, at 18%. The majority of audits (79%) were completed in three weeks or less. Just over one third of all the tax audits (38%) resulted in financial penalties. For the majority of audits (59%), the estimated penalties were under $50,000.
