Three ways to reduce fee compliance burdens

Three years ago, Vertex supported about 400 fees. Today, our software supports approximately 1,400 fees.  

Environmental and recycling fees, airport fees, retail delivery fees, special-district fees and others are adding up. However, the way in which these fees are administered and collected could be improved.   

This is a growing problem for businesses. From a legal-notice perspective, fees are often local. In fact, they are about as local as you can get. This means that businesses required to collect them may not even know how, or when, to do so given that fee statutes and rules are not published in a central repository. Some states have over 40 different fees, and finding details on all the collection and remittance requirements can be time-consuming. 

A second challenge is that existing billing systems must be programmed to produce a separate line item on invoices for fees. When a new fee arises, ERP systems and other accounting applications must be reconfigured so that it appears on invoices. In some cases, companies add the fee amount to their sales and use tax calculations, which is less than ideal from a documentation and audit trail perspective. We’ve seen other instances in which businesses absorb the fees rather than adding them to transactions. That’s suboptimal from a cashflow management perspective.  

Additionally, fees typically require businesses to complete new tax forms that break down the amounts collected by transaction, type and other variables. This type of reporting is generally manual and much less automated than sales and use tax compliance.  

To address these fee-related challenges and risks, the Vertex Chief Tax Office has discussed potential improvements, including:   

1. A central fee repository: It makes sense to publish all fees in a particular state on that state’s department of revenue (DOR) website. 
2. Better guidance and more clarity: Fee statutes and rules should clarify precisely what each fee applies to while clearly identifying the specific steps required when collecting, remitting and reporting on a single, standardised form.  
3. Simplified fee calculation structures: Many current fee rules mandate that sellers undergo multiple assessments, such as evaluating the products being sold and the buyer’s location, and account for related factors, such as exemptions and transaction thresholds, to determine whether a fee applies. Simplifying these structures (per invoice or per item) would also help lessen the fee compliance burden. 

As we engage with more stakeholders throughout the tax (and fee) compliance ecosystem, we expect other improvement possibilities to emerge. We’ll keep you posted about our conversations and progress.