CPAs Pivot to Proactive SUT Advisory to Boost Profits
The 2018 South Dakota v. Wayfair ruling allowed states to require businesses to collect and remit sales tax even if they have no physical presence in the taxing state. When the judge hit the gavel at the conclusion of that Supreme Court case, sales tax nexus instantly became far more complex.
State and local governments quickly began to pass legislation detailing how they categorize and collect sales and use tax from businesses and what their nexus thresholds are. At the same time, suddenly-on-the-hook business owners scrambled to understand their new tax obligations - or in many cases, remained blissfully unaware that they had any.
Aware or not, hundreds of thousands of e-commerce sellers, SaaS companies, startups, and merchants became fully accountable for any SUT compliance missteps as new nexus laws took effect and grace periods expired. So how are CPA firms supporting these business owners?
Staying on Top of SUT Compliance is No Small Task.
The biggest challenge for top CPA firms is figuring out how on earth to make SUT advisory profitable. Even just making an effort to stay current on legislation is monumentally time-consuming; never mind analyzing and identifying nexus responsibilities for clients. However, it’s more important today than ever before since the first Wayfair audit periods will be open in March of 2022.
So what’s the secret?
The key to building profitable SUT advisory services and being able to analyze, establish, and maintain compliance on behalf of your clients can be summed up in two words: be proactive.
Here’s What Most Firms are Doing Today.
If you’re waiting for clients to come to you after they’ve received a notice from a state agency, your firm - like many others - is taking a reactive approach to SUT advisory. That means you’re swooping in to help when an avoidable violation has already occurred.
This reactive approach is costly, both in time and money. In this situation, your team is typically met with a tangled mess of data that needs to be collected from multiple sources and painstakingly sorted for a study. You’re unlikely to capture recurring revenue when clients come to you in this state because their priority is to solve an immediate pain, not to identify a long-term solution.
Now, let’s talk about how you can redesign your SUT advisory services to make them more valuable for your clients - and more profitable for your firm.
A More Lucrative SUT Advisory Approach.
Taking a proactive approach allows your firm to get in front of any potential nexus and SUT compliance issues rather than respond to them after the damage is done. While that sounds good on paper, putting a practical solution in place requires a thoughtful approach.
Your firm is a business, after all. So first, you need to figure out how to implement a SUT advisory solution that makes good financial sense. Right now, firms are slow to adopt a proactive SUT advisory mentality because the process of managing it is complex and time-consuming. And frankly, it’s easier to make money in other areas of the business. But there is a solution.
4 Steps to Making SUT Advisory Profitable for Your Firm.
CPAs love a good formula - and this equation will allow you to build a robust menu of SUT advisory services and add-ons that generate reliable cash flow and long-term repeat clients.
1. Use smart tech to streamline compliance and prove your value.
Many business owners (your clients) are already in hot water when it comes to nexus obligations, and they don’t even realize it! Knowing that, surfacing their vulnerabilities can help you build a case for why your expertise is sorely needed.
This used to be a very manual process. But today, there are automated workflow tools you can use to quickly and easily measure the potential SUT compliance risk for your clients. These tools allow you to effortlessly provide proactive monitoring to your clients.
Being able to communicate the threat businesses face when it comes to SUT compliance is critical - and it will likely be very eye-opening for more than a few of your clients. With compliance risk reports in hand, you can provide a comprehensive cost-benefit analysis that illustrates how much money utilizing your expert advisors can save. Simply compare monthly fees to the cost of the fees that come along with any predicted noncompliance fees and audits to showcase your value.
2. Expand your service menu.
With that critical component in place, you have an opportunity to offer a whole new menu of services that’ll allow you to establish new recurring revenue streams. For example, your firm can provide a standard SUT advisory service for a flat monthly fee. Then, you can give clients the option to include add-ons and build a custom package that fits their needs and budget. These add-ons can include things like state tax registration services, product taxability guidance, compliance management, reverse audit analysis, and voluntary disclosure agreement (VDA) management.
Each add-on increases your value to your client by saving them time and money. Some tools, like state registration services, offer an immediate benefit. Others provide options for businesses that need more insight into where they stand regarding risk assessment. Collectively, all these services support your role in helping clients achieve ongoing compliance, which leads to protection from state studies and audits.
3. Collect success story data.
Once your firm is set up for success, start trialing advisory services on a handful of
clients. As you do, capture social proof data along the way. There’s no need to put a name to the data - you can share details without giving away their identity - but do be sure to describe what sort of industry the client is in. If possible, profile different types of clients to diversify your success portfolio. Doing so will help you build a strong case for how you support various industries. For example, you could focus on a high-volume e-commerce seller, a well-funded startup that’s experiencing a lot of growth, and a SaaS company to start.
As you build use cases, there’s no need to name names. Simply title the client as “E-Commerce business doing $X per year in business” and get their permission to share broad metrics. Capture details around what the client’s compliance risk factors looked like when you started monitoring nexus obligations and how they look today. Also, ask your client to state, in their own words, how your expertise helped them navigate the murky waters of SUT compliance. Leveraging proof that your services helped other, similar business owners become and remain compliant will help you grow your advisory business.
4. Use the upcoming audit deadline to your advantage.
States will begin to cue up their first round of post-Wayfair audits in March of 2022 - making it a phenomenal time to start marketing compliance services to current and past clients. Build your marketing message around doing damage control and explain why it’s essential for clients to make sure they’ve got their nexus obligation ducks in a row before states start issuing notices. To help your message get through, try using one or more of the case studies you built to illustrate benefits for target client segments, grouped by business type.
The Proof is in The Profit Potential.
It's time to get away from not-so-profitable busy work that stems from being reactive to your client's nexus compliance obligations. It’s no secret that establishing predictable recurring revenue channels is the key to long-term success - and you’ve got a golden opportunity to do exactly that.
Nexus legislation is still in its relative infancy, and it will only become more challenging to manage for the foreseeable future. That's why it's the perfect time to implement a proactive, scalable SUT advisory approach. Doing so will allow you to stay on top of inevitable nexus changes, enhancing your firm's ability to protect clients from audit risk factors. Taking a proactive approach also enables your firm to diversify its service offering and establish long-term revenue-generating opportunities as you provide immense value to your clients. It's truly a win-win!