How to Evaluate Sales Tax Software Contracts

If you believe their websites and sales copy, sales tax software will solve all your problems, take away your worries, and make the world a brighter, happier place.

That's rarely how it actually goes.

You get stung with hidden fees, get trapped by long commitments, or simply discover the app doesn't do everything you expected.

But without inventing a time machine, working out how reality will compare to your expectations is a tricky business. You've no way of knowing what's going to happen.

Or do you?

Actually, there's one very important document that will give you a great idea of how things are going to go — your contract.

Every sales tax software has a contract, and it's full of important information you can use to determine whether or not you're making the right decision.

You just need to learn what to look for.

As luck would have it, that's exactly what this blog post is going to teach you. I've broken it down into a step-by-step process, to make it as easy to follow as possible. Here are the sections, in case you want to skip ahead:

• What is sales tax software?
• What is a sales tax software contract?
• How to evaluate a sales tax software contract

By the end of this article, you'll be able to confidently evaluate and compare contracts, so you can find the best option for your business.

What is a sales tax software?

Sales tax software are tools designed to automate the complex and time-consuming process of calculating and filing sales tax. There are two primary types of sales tax software: tax calculation tools and filing engines.

Before we get to the contracts, here's a quick summary of these two types, so you know exactly what we're talking about:

Tax Calculation Tools

These tools automate the process of calculating the correct sales tax to charge at the point of sale. They ensure that the right amount of tax is collected based on the product and the location of the sale.

Some e-commerce platforms like Shopify provide their own built-in tax calculation features, but in some cases you'll need to use a third-party tax calculation engine. This is particularly true for businesses that sell products that could be exempt in certain states such as clothing, dietary supplements, and digital products.

Filing Engines

These tools automate the preparation and submission of sales tax returns. Given the complexity of filing returns across multiple jurisdictions, a filing engine can save you significant time and reduce errors.

It does this by calculating your total tax collected, prepares the necessary returns, and sometimes even submits them electronically for you. Some may only prepare the return, requiring you to manually submit it, while others handle the entire process.

What is a sales tax software contract?

A sales tax software contract is a formal agreement between a business and a sales tax software vendor.

This contract outlines the terms and conditions under which the software will be provided and used. It is crucial for setting clear expectations and protecting both parties involved.

Here are some of the common elements typically included in a Sales Tax Software Contract:

• Service Description: Details of the software services provided, such as tax calculation and filing.
• Pricing and Fees: Information on costs, including any hidden fees, setup charges, and payment schedules.
• Usage Limits: Stipulations on usage, such as transaction limits and tiered pricing structures.
• Commitment Period: The duration of the contract and any terms related to renewal or cancellation.
• Support and Maintenance: Details on customer support, software updates, and maintenance services.
• Deliverables: Specifics on what the software will deliver, such as automated tax calculations or return filings.
• Legal Terms: Clauses related to liability, data security, and compliance with tax laws.

Sales tax software contracts are essential because they provide a clear framework for the business relationship, helping to avoid misunderstandings and disputes.

They ensure that both parties are aware of their responsibilities and the scope of services, which is critical for maintaining compliance and operational efficiency.

While it's vital that you read these contracts, it's just as important to get a 1-to-1 meeting with the vendor to discuss them in more detail.

This allows you to clarify certain points, and ask any questions you've got about the contract.

How to evaluate a sales tax software contract

1. Timespan and Commitment

The first thing you need to look at is how long you're committing to this contract. Sometimes it's month-to-month, and sometimes you're committing to a whole year (or more!) up front.

If you feel confident this is the right tool for you, a year doesn't seem too bad. But as soon as anything goes wrong, you could find yourself stuck paying for something you don't want/need. It’s crucial that you fully test the sales tax software and confirm that it will work for your unique sales tax situation.

It's surprisingly easy to get stuck with a provider, even when you're no longer benefiting from the app you're paying for.

2. Fees

Similarly, you need to be confident you know exactly how much you're going to pay, and when you'll have to cough up.

If you're agreeing to a yearly plan, then you might have to pay the whole lot up-front. Can you afford that?

And how flexible are the fees? If you decide you don't need to use all the options you chose, can you remove them, or are you stuck paying for them the whole length of the contract? And what happens if you end up needing less of the service … will they let you scale your price down to accomodate? Some sales tax software contracts won’t support this. 

Also, are there any hidden fees? What happens if you pay late, add more users, or want to make changes?

3. Usage Stipulations

Fees are rarely as straightforward as just the length of the contract. You've also got to be conscious of any usage stipulations that are included.

For example, the tier you're on might only cover up to a certain number of transactions a month. But if you go over, this might bump you up into a more expensive tier. Often without even letting you know. Oftentimes, sales tax software quotes will include the lowest-level transaction tier, and keep the higher-level tier pricing out of plain view. It’s critical that you understand how your price will change if you go above your initial transaction tier.

You need to be aware of this, so you can both keep within your tier, and be mindful of any extra costs. Because going up one tier could have a huge impact on how much you're charged.

4. What are you actually buying?

You read the brochure and listened to the salesperson, so you know what you're buying, right?

This isn't always as simple as you'd think.

You need to make sure the contract clearly states exactly what you're getting for your money. And if the contract doesn't specify everything you expect to get, you need to clarify this with the vendor.

For example, we've seen cases where someone thinks they're getting both a filing engine and live tax calculations, but they've actually only got one with their contract.

5. Vendor Communication and Support

What happens if something goes wrong?

The contract should make it clear exactly how to contact them, how quickly they should respond, and what happens if they can't help you within that time. Many sales tax software contracts do not come with priority support, like phone support. So if you need help, you may be on your own figuring things out with their support articles. Sales tax software is a DIY solution after all. 

It's the vendors responsibility to adhere to these SLAs (Service Level Agreements), but you still need to be aware of them.

This is also a useful metric to compare if you're considering a number of vendors.

6. Renewal and Cancellation Terms

What happens at the end of your contract, or if you want to cancel early?

Often, the contract will include an auto-renew at the end of the term, which means you'll automatically commit to another month or even year when the contract is up.

This is fine, if they notify you in time and it's easy enough to stop it. But sometimes you won't be notified. This means you could commit to paying a lot of money again, without even realizing it.

How about if you want to cancel the contract before it's reached the full term? Is it even possible? Oftentimes, there is a short window of time when you can cancel your sales tax software contract. If you don’t provide enough notice to the vendor, your contract will automatically renew for another term.

As we've already mentioned, if you can't cancel then you could end up with a software that doesn't do the job, but you've got to keep paying for it.

Or you could end up being lumped with cancellation fees, essentially punishing you if you realize you're not getting as much value as you expected.

Bonus: Do the research

This isn't strictly part of the contract, but a key part of the decision making process is researching the vendor to see how well they do at keeping up their end of the bargain.

Look at what other customers are saying on things like G2 and TrustPilot, and see what kinds of issues people have with both the software AND the company.

What are they saying? Are they actively working with their customers to resolve any issues? Do they keep to their SLA's?

If there are any red flags, or what you see doesn't match what you expect, you should think twice about signing a contract with them.

When in doubt, get expert advice

Before you jump into a sales tax software contract, you may want to have a conversation with an expert to ensure that you’re really getting everything you need. 

Sometimes purchasing sales tax software, like a sales tax calculation engine, is a necessity for your business. But sometimes it is not. We’ve seen many businesses purchase software they thought they needed when in reality there were free tools available that could get the job done. If we had met with them before they signed, we could have saved them many tens-of-thousands of dollars. If you don’t want that to be you, consider scheduling a free initial consultation with our team. 

Many businesses purchase sales tax software thinking that it will do everything for them, only to realize that it is a DIY solution. If you’re looking for a team of experts who can handle everything for you, TaxValet’s Fractional Sales Tax Department could be a great alternative. 

In Summary

• Sales tax software contracts can be tricky because you might purchase software you don’t really need, not realize how the price will adjust based on usage, and be locked-in to an extended term. 
• Canceling sales tax software contracts requires providing notice within a specified time period. If you don’t provide ample notice, your contract might renew for another term.
• Sales tax software alone is rarely enough to get sales tax off your plate entirely. This is where working with a team of experts can prove to not only be useful, but highly cost effective. See our blog: Sales Tax Automation Software: Why It’s Not Enough for Comprehensive Compliance