Updated – Originally published February 5, 2025
Sales tax is complex — especially in 2025, when businesses are selling across more states, more platforms, and more jurisdictions than ever before. Many retailers turn to sales tax software to simplify that complexity. While automation can be a powerful tool, it isn’t perfect. And relying on software alone can create costly gaps in your compliance.
Below, we break down how sales tax software works, what it does well, and the key limitations every business should understand before assuming automation can handle sales tax without human oversight.
What Is Sales Tax Software and How It Works
Sales tax software automates portions of the sales tax process, including calculating, collecting, and filing sales tax. These systems integrate with accounting, ERP, payment, and e-commerce tools so retailers can automatically apply the right tax rate to every transaction.
Sales tax automation is especially popular among:
- E-commerce sellers
- Marketplace sellers
- SaaS and digital goods businesses
- Multi-state retailers navigating economic nexus
- Subscription and recurring billing providers
At its best, sales tax software reduces manual work. But it’s only as accurate as the data it’s given — and it has no ability to “think” through tax rules the way a trained professional can.
Key Features and Benefits of Sales Tax Automation
Sales tax software typically supports:
- Real-time rate calculation
- Nexus tracking tools
- Taxability assignment
- Exempt sale management
- Filing and remittance
- Automated reporting
- Standard integrations with e-commerce and accounting systems
Businesses adopt automation because it increases efficiency, reduces manual data entry, and speeds up invoicing. For companies processing thousands of transactions, software is an essential part of their workflow.
But automation alone does not guarantee compliance, and that’s where challenges begin.
6 Major Limitations of Sales Tax Software
While automation simplifies compliance, it isn’t foolproof. Here are six common issues to watch for.
1. Accuracy Issues in Sales Tax Calculations
Software often miscalculates sales tax because it can’t interpret nuance the way a trained tax expert can. Common calculation errors include:
- Misapplied taxability
- Incorrect refund or credit calculations
- Wrong sourcing rules
- Incorrect handling of marketplace facilitator rules
These errors lead to businesses overpaying or underpaying tax — and both scenarios create risk. Correcting software-driven inaccuracies can take months, assuming the software even flags them.
2. Collection Without Proper Remittance
Some platforms focus heavily on collecting sales tax but fall short when it comes to remitting it to the correct tax authorities.
If the software doesn’t remit correctly, the state still holds you responsible.
This can trigger:
- Penalties
- Non-compliance notices
- Audit exposure
Even if it was the software’s fault, the liability is yours.
3. Limited Customization for Different Business Models
Sales tax software is built for standardized processes — not unique business operations.
This becomes a problem when your tax needs don’t fit neatly into the system’s preset options.
Examples include:
- Professional service providers vs. SaaS providers
- Mixed sales models (digital + physical products)
- Industry-specific exemptions or incentive programs
Automation isn’t designed to interpret tax nuance. And when your business doesn’t neatly fit into a universal template, software can create more problems than it solves.
4. Struggling to Stay Updated With Changing Tax Laws
Sales tax laws change constantly — especially as states refine revenue goals and enforcement after Wayfair.
Automation tools often struggle to keep up with:
- Rate changes
- New district taxes
- New economic nexus thresholds
- Updated taxability rules
- New filing requirements
When software isn’t up-to-date, your returns won’t be either. That leads to miscalculations, audit triggers, or missed exemption opportunities.
5. Handling Complex Business Models and Transactions
Automation performs best with simple, predictable transactions. It performs poorly when businesses have:
- Multiple revenue lines
- Complex product taxability
- County-by-county rate variations
- Special exemptions
- High-refund environments
- Complicated SKU catalogs
Many systems rely on taxability codes, but choosing the wrong code is one of the most common sources of sales tax software error. And the software cannot tell you if your code selection is wrong.
6. Limited Customer Support and Expert Guidance
Software companies offer technical support… not tax advice.
That means they can fix a dashboard bug, but they can’t advise on taxability, they can’t evaluate your nexus footprint, they can’t explain filing errors, and they can’t strategize your compliance.
When sales tax gets complicated, you need a human, not a help desk.
Real-World Example: When Sales Tax Automation Goes Wrong
This isn’t theoretical. Sales tax software errors happen every day.
One e-commerce seller we worked with received a $1 million sales tax liability assessment because their automation platform failed to account for marketplace sales, tax exemptions, and state-specific rules.
The business assumed the software was correct. It wasn’t.
After reviewing the case, our sales tax experts helped reduce the company’s outstanding liability by about 90% through advanced strategies & proper communication and processes with the states. The business was able to keep their doors open as we set their systems up correctly moving forward.
We love automation here at The Sales Tax People, but automation alone could never have done all that.
How to Overcome the Limitations of Sales Tax Automation
You don’t have to abandon automation. You just need the right support around it.
There are three common approaches:
1. Professional Sales Tax Oversight
A dedicated state and local tax (SALT) specialist monitors your filings, nexus footprint, taxability, refunds, and accuracy.
2. Outsourced Consulting (The Sales Tax People Model)
You get a full team — accountants, consultants, and experts — acting as your outsourced sales tax department.
3. In-House Tax Department
Some businesses build internal teams who learn the complexities and manage everything manually, but this is often expensive for smaller retailers.
Choosing the Right Mix: Automation + Expert Oversight
The strongest sales tax compliance systems use automation for speed and efficiency, paired with human expertise for accuracy and strategy.
Software handles the repetitive tasks.
Experts handle the nuance.
And together?
You get the peace of mind automation was never designed to provide on its own.
Conclusion
Sales tax software is a powerful tool — but it has limitations. Without human oversight, those limitations can turn into costly liabilities, audit exposure, and compliance headaches.
If you want clarity, confidence, and a sales tax process that actually works, partner with The Sales Tax People for customized compliance support.
We bring the people behind the peace of mind — and we help you build a sales tax system that works, no matter where you do business.
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