Tax is not an Afterthought: A Savvier Approach to Subscription Billing

If your organization is preparing to implement a subscription billing platform, you should know that it’s not alone. The so-called “subscription economy” is booming. U.K.-based Juniper Research projects that the market value of the subscription economy will increase from $224 billion in 2021 to $275 billion this year. That amounts to a hefty 23% increase. 

The ongoing advancement of e-commerce capabilities, a surge in omnichannel adoption and the growth of subscription billing platforms figure as key drivers of this surge. The benefits of subscription billing are also driving adoption. Advantages range from lower customer-acquisition and retention costs to reduction in customer churn to better financial forecasting to inventory management improvements. 

Despite these alluring benefits, some organizational leaders, including those who helm tax groups, have cause for concern. The issue stems from the fact that tax considerations are often neglected during the planning and implementation of a new subscription billing platform.

When tax is treated as an afterthought, the invoices that the new subscription billing platform generates are incomplete. When this occurs, buyers do not pay sales taxes and sellers fall into a state of non-compliance – subjecting them to audits as well as potentially substantial penalties, and fines. 

Fortunately, there’s a straightforward, three-step solution to mitigating audit risks: awareness, involvement and integration. Tax leaders have a responsibility to inform their business partners of tax compliance risks that arise when new transaction models or sales channels are being considered. Business and information technology (IT) leaders should ensure that tax is involved in the planning process for a subscription billing platform implementation. 

When tax groups are involved at the onset of the planning process, they can let their colleagues know that leading tax automation providers, like Vertex, offer integrations of their tax engines with many industry-leading subscription management platforms. These integrations streamline, automate and standardize taxability and calculation on every purchase transaction that occurs in the subscription billing platform, regardless of whether those sales are domestic or international.

A little bit of knowledge, early involvement and the right tax technology can go a long way to optimizing the returns on new subscription billing investments.