Published June 12, 2025
Pros and Cons of Automated and Manual Sales Tax Reporting
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Sales tax is a requirement for nearly every retailer, but companies have options in how sales tax gets filed. The many options available boil down to two main categories: manual and automated.
Which option is better? And how can companies ensure their sales tax process is accurate and in compliance without taking away valuable resources? Let's dive into the differences between automated and manual sales tax reporting.
As the name implies, manual sales tax reporting is done by a person calculating each individual transaction. Retailers can use systems and set calculations for sales tax but have to create the equations and manually track, record, and collect the sales tax. Retailers also have to manually gather all records and remit sales tax returns.
On the other hand, automated sales tax reporting is done via software that calculates the correct sales tax amount, factoring in things like purchase type, location, and sales price. An automated sales tax system quickly calculates and collects the correct sales tax amount.
Many businesses use a mixed approach—using automation for some aspects and manually handling others. To understand the pros and cons of each, it’s helpful to consider the following key areas:
Before we do, it’s important to emphasize why this really matters for business leaders.
Nearly every state in the United States (45 of them, to be exact) impose a state-wide sales tax. That means that in those states, every transaction after a company establishes nexus requires sales tax. The total has to be calculated, collected, and remitted. Failing to do so could result in huge problems down the road.
With that in mind, let’s look at the differences between using an automated or manual approach.
Sales tax regulations change quickly and often. Just because your company has collected a certain sales tax rate on a transaction historically, doesn’t mean you’ll always collect the same amount. Many factors impact the sales tax amount, including location, tax rate, and the type of good or service. Even a small change to regulations in one of those areas can have a ripple effect on sales tax reporting.
Automated sales tax reporting and outsourcing to a dedicated provider means that algorithms and systems are automatically updated as regulations change. If a state increases its sales tax rate, for example, or stops requiring sales tax for a certain type of service, the automated system will adjust without the company needing to do anything.
With manual sales tax reporting, on the other hand, companies are responsible for staying on top of changing sales tax rules and ensuring their calculations are always correct. That often means dedicating someone in the company to focus on sales tax changes and manually updating algorithms and formulas with every small change.
The stark difference between manual and automated sales tax reporting is especially evident in companies that sell in multiple states. Calculating sales tax rates and regulations across numerous states adds another layer of complexity. While staying on top of changing rates and regulations across states isn't impossible, it requires dedicated time and effort that many retailers can't afford.
When calculating sales tax, both speed and accuracy are important. Manual sales tax calculations can slow down the transaction process and hurt the customer experience. At the same time, calculations that focus too much on speed can sacrifice accuracy and risk audits and compliance issues.
Automated sales tax calculations occur nearly instantly, creating a faster transaction time and making sales tax a smooth part of the process that customers likely won't notice. Manual sales tax reporting can take longer, especially for unique or unusual purchases. A retailer may have to work through numerous calculations, adding time and frustration.
Manual calculations may also be more likely to lead to errors, which take even more time, resources, and money to correct. Underpaying sales tax can cause companies to file an amended sales tax return and pay additional penalties and interest. Automated sales tax reporting can remove much of the chance for error and provide a smoother, faster process.
Sales tax reporting requires careful calculations and record-keeping. Staying compliant is possible with a manual system, but creating scalable systems requires more upfront work. Compliance includes everything from knowing when a retailer has reached a state's nexus threshold to monitoring sales and filing sales tax returns.
Automated sales tax reporting also means automated compliance. Instead of having to manually track reports, deadlines, and filing requirements, sales tax software can add those elements to an automated workflow for nearly hands-off compliance. Sales tax automation can help by analyzing a retailer's transactions and alerting them when the company approaches or exceeds a nexus threshold. Sales tax software can also produce comprehensive tax reports and track and manage exempt sales, both of which are critical to staying in compliance.
One of the biggest considerations in the manual versus automated debate is control versus convenience. Every business has unique processes and needs. With manual sales tax reporting, companies can adjust the workflow to create a process that works with employee bandwidth and meets customer needs. If the location or type of product changes, the company can easily adjust its sales tax process.
Customization doesn’t tend to be quite as easy with an automated system. Sales tax software provides convenience, but not all platforms guarantee the exact features or integrations that companies may want. A generic automated sales tax system may not understand or adjust to the nuance of the company.
With manual methods, companies have control over their sales tax processes but it isn’t convenient. With automated methods, companies give up much of the control in favor of convenience.
One of the biggest factors for a sales tax system is the price. Manual sales tax reporting can be inexpensive, with most of the cost going to the point of sale system and learning the ins and outs of sales tax. However, once the company has an established process, it can complete sales tax requirements without paying a monthly or transactional fee.
An automated sales tax platform is an investment for companies, and some companies may be hesitant to take the plunge. Some of the more advanced software options can take a larger portion of each transaction, which can cut into the profit for smaller companies. However, speed and accuracy can free up time and resources and lead to more long-term growth opportunities.
Automated sales tax reporting offers speed, accuracy, and compliance and removes much of the headache of calculating and reporting sales tax.
But too often, companies fall into the trap of buying a one-size-fits-all sales tax automation solution, setting it up, and forgetting about it. Although powerful, automation shouldn’t be thought of as auto pilot.
Most retailers find the best approach is to pair sales tax software and automated solutions with the help of experienced sales tax professionals. Working with consultants or tax partners to ensure accurate calculations can help companies harness the benefits of automation. These partners can offer personalized support and monitor the automated system to ensure everything works properly.
Another option to consider—especially for large companies—is an in-house tax department. With this model, an employee or team is hired solely to focus on tax issues. These employees can become experts and stay on top of changing regulations and rates. An in-house tax department is easy to get a hold of and should have an intimate knowledge of the company and its products, allowing them to provide accurate, personalized recommendations. The biggest drawback to this approach is cost. For many businesses, it simply isn’t an option to retain a full-time sales tax team.
The important thing to remember is that while good software will automate many aspects of sales tax compliance, it can't run an entire sales tax process completely on its own. Retailers still need to understand their constantly evolving sales tax obligations and ensure the software is set up correctly. Utilizing a consultative approach can be the best option for many companies.
Ultimately, the debate on manual versus automated sales tax largely hinges on time. Manual reporting takes precious time and comes with a steep learning curve. Automated reporting can yield incredible time savings and give retailers more time to spend on creative, business-building tasks instead of repetitive sales tax-related tasks.
When deciding between manual and automated reporting, consider how much time sales tax calculations and management take from your daily tasks. Think about how much time manual calculations add to every transaction and how long each employee needs to be trained to fully understand sales tax. Individually, these tasks may not take long. But, when added together and considered over the lifetime of an employee or company, they can add up to a significant amount of time spent managing sales tax.
Although moving towards automation or utilizing a sales tax expert can seem like a significant investment, it can bring returns of more time for revenue-generating activities.
If you like the idea of adding automation to your process but aren’t sure where to begin, we can help. For over 30 years, The Sales Tax People have been helping businesses strike the right balance while ensuring proper sales tax compliance. Of course we’re biased in saying this, but we built our entire white-glove service around the goal of giving businesses the best of automation with the best of manual reporting.
We can set up sales tax software properly and be in touch to handle all sales tax related tasks for your company so you can focus on all the other aspects of running a business. Think this might be the solution you’re looking for? We always start with a free, zero-pressure call to answer your questions and lay out your options. That allows you to make the right decision for your business.
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