Brent Reeves, Co-Founder of CereTax: Balancing IT and Tax

Meredith: 00:00:34

Welcome to SALTovation.

The SALTovation show is a podcast series featuring the leading voices in SALT where we talk about the issues and strategies to help you make sense of state and local tax.

Meredith: 00:00:46

In part two of our conversation with Brent Reeves, co founder of CereTax, we get deep into the weeds of what makes modern sales tax automation effective. From API driven architecture to the real world consequences of faulty integrations.

Brent walks us through how CereTax is solving the problems businesses didn't even know that they had. We also explore audit readiness, legacy system pitfalls, and why sometimes doing it right the first time saves more than just money.

Whether you're tech savvy or tax curious, this one's packed with insight.

Meredith: 00:01:19

So I want to take a step back because we've been kind of throwing out some terms of like, connectors and API focuses and what that all means. And kind of the way, you know, Brent, you've express air attacks, it's like you're flexible, you'll nim, you're nimble and can adapt.

But when we're talking about connectors and we're talking about APIs, what does that mean from like a sales tax perspective for maybe some of our listeners who either don't live in this space, maybe they're an income tax person, but like, what does that mean when you're thinking about sales tax?

Brent: 00:01:53

Well, I mean, you know, connector, API, you know what I mean? Sometimes the terms are kind of used, you know, ubiquitous, you know, they're kind of the same.

But I think of connectors more as like fixed points and, you know, where it's like, all right, I built, you know, kind of a one line of communication right into, into this platform and it's like, it's, it's there and you just, you know, if I'm the customer, okay, I've got a connector to this system that sits over here. I just turn it on and it's supposed to work, right? And then.

But then I have another system that doesn't flow through this system, so what do I do over here? Right? And so that's where we're.

If you think about it, the way I kind of think about it anyway is like, connectors are kind of more like one to one, whereas API is kind of like connect at all, right? So that's kind of the way I think about it.

And even the connectors, like the early connectors are kind of built and like I said, oh, it's over here and it's just supposed to work. It's like, okay, but what if, like what if, yeah, it works for like 80% of what I'm doing, but for 20% it doesn't.

Well, the connector itself, you know, may not be built to say, okay, well let's just adapt it, let's just modify it. Right. Let's just change it.

So when I think about it that way, I think like, you know, just being API driven on everything else is just sort of adds a layer of kind of connectivity across your entire base, but also your, you know, into your custom workflows and into your, you know, your in house, you know, homegrown solutions, you know, and things of that nature. So it's like I want to be able to support you with everything. You've got a custom website that you built in house, custom shopping cart.

So that's kind of the, kind of the way I look at it.

Meredith: 00:03:41

Well, and so, and again, right. If you're thinking about it from like a layman's perspective, like your API kind of to you means like that flexibility and that all encompassing.

We can talk to you over here, over here and over here versus just like a can, you're going to plug it in and that's it. And then if you have something else, you're going to plug in something else.

So Maybe we got 80% on one system, but then we're going to plug it in over here. We've got 18% over here. We, but we still have this 2% Delta.

But when you're kind of thinking from an API perspective, it's like circular and you can cover that 100% of everything that you're doing.

Brent: 00:04:19

Yeah. And it's kind of owning the technology too, if that communication. Right. So that, you know, for a number of reasons it's also the back end. Right.

So I'm communicating, I'm communicating with all these systems. I'm owning the technology that's connecting to whatever it is. So number one, I'm kind of owning the workflow that happens.

So if I need to customize that workflow somehow I can do that, you know, in house.

Second, secondarily, it's like, okay, also, yes, you want as many things as you can to live in an erp, but you also have to have that kind of backend reporting because sometimes the reporting you can pull out of an ERP isn't complete. It isn't, it isn't. It's, it doesn't give like Judy, for instance, what she needs in order. Right.

And it also doesn't give the business visibility into what happened in order to be audit proof. Right. So that was a, that was also actually going back to one of your earlier questions, that was another kind of thing.

It was like, okay, what were the big problems we saw when people got audited?

And it was like, I didn't have any visibility into my data and it took me forever to just like get simple reports to go, this is, you know, this is what we did. And then the auditor usually doesn't stop it, like, this is what you did. It's usually like, well, why did you do that? Right?

So having the visibility into why was, was just as important, right?

So that was one of the things we always saw, you know, even in our previous, you know, company, which we were proud of, thought it was, you know, best product in the market at the time. It was like, okay, well, if you had to dig into it, we didn't really know why.

And even just like investigating things like overrides, exemptions, rules, right?

So maybe, maybe like, okay, this is taxable in this way, but I need to make a rule that, that every time I see this customer number and this product number in this location, I need to citus it to this particular spot because there's a reason for it, right? There's a reason, like, okay, I sold it to customer A whose headquarters is in Wichita, but the guy who's using it is in New York, right?

So I need to make a rule that every time I see this transaction that I'm sourcing some of it to this user over here. So just things like that.

But then visibility into the rules because what happens, what we see a lot when we used to see all the time, especially when they were converting products, right? It's like, okay, well you're getting this result, we're getting this result. Why? And they're like, we don't know. We did an override.

Well, who did the override? We don't know. Well, why'd they do the override? We don't know, because that person quit, right? Two years ago. Two years ago. And they know.

hey have no idea what Jane in: 2004

I don't know, Jane did it in: 2002

You got to go, well, Jane did it because our taxability changed because we added this product line, or we added shipping, or we included this, you know, things like that. So that was one of the things. Again, it's just like creating that transparency.

And again, that goes where the APIs also come into, as opposed to the connector. Connector basically enables DAX inside the erp, if you think about it that way, which is great, don't get me wrong. It's great.

But again, owning more of that communication than being able to interact all over the place via more of an API, it allows us to be able to, you know, also house all that data. So if you do have limitations in your ERP as far as what you can get out, I've got it right.

So when Judy calls me and says, I'm representing somebody in an audit, I need to know why this happened. I need to know what happened in New York City. I need to know why I not only give her what happened in New York City, but why.

And, you know, I can even run, you know, what if scenarios go, well, if you'd have done it this way, you to come up with this. Yeah, right. Even just like taxability. Right.

That was another thing again, going back to the module, things like, you know, you might get attacked back and you go, why'd you get this tax? Well, because it's SaaS. Okay, great. And then they go, well, you know, but a lot of people like, well, we don't think that's applicable.

Why is that applicable? Well, there's no exposure, right. So you'd either have to buy another module. Right. Or buy a tool. There was a company out there called, Right.

That had it, you know, had a tool and all. All it basically did was just look up tax or you submit a support ticket and wait for like weeks.

As far as saying, like, why did you apply SAS to this particular module when it's downloadable software making something up. Right. But so even that.

So we're like, we wanted to expose the taxability also and say, okay, we used, you know, here's the definition that we used for your product. Does that match? And then here, here are the statute and regs we use.

It says in, you know, Colorado, this, you know, this applies that expertise between.

Judy: 00:09:21

The choice and the application is super important. And then, you know, it's interesting about sell stack software. I don't think they tell you this, but by default it's taxable.

If you have Nexus and you don't map a product to a category, it's going to default to taxable. We've had clients override the taxability. Why they don't even know.

So we have a Pennsylvania audit issue, half a million dollars for a client that didn't collect the tax. Didn't even think about it. Now we're fighting it.

When it's questionably taxable, it isn't 100% right or wrong, but it's like, is that the way you want to do business? To have to fight, just tax it or think about it? But what they did is they just took it away. So this interesting.

They didn't even understand what that meant.

Brent: 00:10:00

Yeah.

Judy: 00:10:00

Does that make sense? They didn't understand when they added a new product code what they should do with it. So they just overrode it. And then they got in trouble later.

So that's not fun. Because whoever overwrote it is no longer with the company.

Brent: 00:10:12

Yeah, yeah.

Judy: 00:10:14

So it's just that sort of stuff.

Brent: 00:10:16

I mean, we surrender every size company. I mean, that's the thing. It's not like exclusive. I mean, there are really large companies have massive tax teams.

And they're probably the worst, honestly, because, you know, there's so many people in there and there's so many kind of, you know, cooks in the kitchen, if you will, that if there's no traceability onto, you know, again, why somebody did something, it's an, you know, it's an issue. And that goes back to the other part about multiple disjointed systems.

It's like, because you might make a change in this system, but this division over here didn't make that same change. You know, it's not an institutional awareness.

Judy: 00:10:52

I can remember it going out and we get at the table and it's making a change. We're like, wait a minute, what are you going to do about tax? You know, and we get involved to advocate for that because the.

It's just like, I just want to connect it. I need a poll. This is historical data into this new system and make it all work. And it's like.

But you need to make sure you can take that next step, too, because those are the duties you have. And the. It is like, you know, they're like, I got historical, I got new. And then I can't deal with any of that other stuff in the middle.

And I'm like, it's funny because they're smart tech people, they understand data. If you don't insert yourself in that process as a tax or finance or accounting person and speak that language, you miss the bubble.

Meredith: 00:11:28

And it's not even. It's not even tech people who are making those decisions.

Like we find often that it's sales, it's sales people where they're like, I'm gonna get this sale. I'm gonna. Yeah. Oh, you need 20 more users. No problem. Here's the same code. I'm gonna add 20. It's a different SKU and it's not mapped.

Cause what does sales wanna do? Right. Companies don't exist without sales. Right.

But they are constantly adding things without this kind of the next step of what, of what that means we have.

Judy: 00:11:57

A client that they put everything under a parent, have a bunch of shopify entities and everything's registered the parent, but there's no way to remit or collect tax at the parent. And it's not even an operating entity. Like people don't understand how to get licensed, they don't how to integrate things.

What is legally a structure? Is it actually sales tax a structure? You know, there's this.

Let's pull together a bunch of different businesses with different systems and then throw it all together and call it a brand. But there's a physical, fein related or a legal entity with each one.

I mean people don't always think like you can't just roll things up for business purposes and go to market and not consider the operational issues and the legal issues.

And there's a huge disconnect between those within tech and legal and private equity buying up different brands to assimilate to a concept and having all those entities. And that's also the problem with large multinational companies.

They acquire, they acquire people, content, clients and they don't integrate into the system.

And I always laugh because we would have all this, you know, a lot of, we worked with BlackRock and all kind of the big PVE at Deloitte and, and they were always on it like they made sure they got sales tax compliance, state tax compliance, I love that. Cause they understood that and they valued it. Cause they knew there was legacy issues. So they always get everything cleaned up.

But it's such work on the people who are still there to operationally manage all the different systems. Because they don't talk to each other.

Brent: 00:13:20

Right. Well. And you know, and all these companies, right. It is usually so overburdened with everything. So you know, that goes so.

And the tax team is, I mean, you know, not to be hopefully this not offensive to everybody out there.

But you know, they're always kind of like the red step child in the, in, in the back office or something that they don't, they just don't get the attention that they deserve because everybody's always playing offense, right? And they're not really thinking about defense. And it's like, I can add all this revenue if I use my IT team to build this functionality.

And then that IT team's not available for the tax team when the tax team's laying in. Hey, I got to connect five new systems over here just to remit tax. I gotta have IT resources.

So that was one of the things too, is like, how do we make it so it light so that, you know, I don't have to have, you know, Liz in the back office fighting, you know, the sales team who wants to build some kind of cool new feature because they got a customer for it. And then she doesn't know how to like, well, how about, how do I get to sales tax data? How do I, how do I combine? How do I report? Report on that?

Because she's not getting it to help. She's just not.

I mean, so no, so we're like, that was part of that is like, how do I make this so it light that, you know, we can actually enable them and allow them to kind of fight for the resources they need.

But, you know, one of the things you were saying earlier kind of made me think back to the very first question was like, okay, well, you know, what's kind of, what's different? Like, you know, when you built the sophomore, what were you kind of considering or what did that team look like?

And we're talking about, you know, yeah, technology people, but they have to have the tax background, they have tax knowledge to understand it. It's like, how many times, Judy, do you deal with companies where it's like the IT team comes in to talk about it, they don't understand tax at all.

And like you, you're trying to get them to understand what it is you're trying to accomplish. And they just, they're like, yeah, we'll, we'll do this and we'll do that. And they're like, no, no, no, no, you don't understand. Like, that's so.

It's like, those are the people, you know, I can't hire them to build my, my technology. You know, my, my tax technology. I gotta hire the IT guys.

Like, yeah, I know exactly what this is because I've had to do this for my, my tax team before.

So that was one again, when we were hiring, we're like, yeah, you know, obviously you want first class developers, but if we can find the leadership team especially that has that kind of, you know, tax background, then when you build the foundation of the product. It's always going to be built on the foundation of tax.

Judy: 00:15:47

I mean the Internet has proliferated growth and new ways of doing business and new ways to connect to one another and to build your marker bigger than your backyard. It's fantastic.

Meredith: 00:15:57

So yeah, well I think that's the perfect transition to kind of as we wrap up, we always kind of like to end with a, well, what's next? Right.

So looking ahead, how do you envision the future of sales tax automation evolving and do you see any trends or innovations that we should be watching for in the next year other than maybe Zara Tax goes public and they're huge and you never have to do this again.

Brent: 00:16:22

Yeah, so that's actually I'm going to play I guess the contrarian role a little bit here because most of the time people say what's next? And you're always like AI and all these other kinds. Yeah.

And yeah, I mean obviously that's happening and even within our space, obviously, you know, we're, we're going to be using AI to make things more efficient. But I really see a trend in moving away from the fully automated solutions and more into the, the services.

The services solutions, especially in the, in the compliance space.

Because as companies are entering in and they are getting to a certain size and they've tried the push a button and everything's automated for you only to realize that okay, well no, there's actually some art to this and also it's like especially, like again especially in kind of when you're tipping from the small to the mid market is where I really start to see that. I, I see going to that because they're like, okay, well what's a notice? Why aren't my notice, you know, why aren't my notices being filed?

And like the fully automated solution is like okay, I think it's working. I mean I pushed a button and it said it filed the sales tax. But like I'm now getting, you know, requests from the Secretary of State.

I don't really understand this or Department of Revenue.

And you know, and it's, there's this comfort level and, and I honestly think I see more people moving back to yes, you're going to automate parts or you're going to automate our side obviously. I mean the tax calc has to be automated and you know, exemption certificate management, if you can automate that as best as you can. Absolutely.

You know that those are, those are kind of table stakes automations that these companies going to move into.

But I really see a trend in those, those companies going, no, I really want someone like, you know, that I know is going to answer the phone call because I don't really understand this and I want this comfort level that it's actually being done right and that I can get that support level. So we're seeing more like in the compliance space and the filing space and the, and the consulting space and things like that.

We see more trend towards like what I would call technology enabled services.

So it's more around like Judy, you know, and your firm actually being there, you know, and people are like, you know, as opposed to, you know, the automated end to end. It's like automate up to here. But at this point I gotta have someone I can rely on. I see that as a trend on the, on the sales tax automation side.

The, the trend we see and what we're really trying to enable is how easily can I make it to where someone can convert one system to another system, whether it's one of my competitors to me or whether it's, hey, how easily can I take three systems and, and change it all and connect it.

So I think that's where the, the innovation and the invention is, is coming, is where like, okay, where is there that, what is that tool that it doesn't take two and a half years to convert, you know, tax engines because I'm not getting what I want. But it's just too cumbersome, it's just too cumbersome to make the switch.

So you know what has to happen in order to trigger that event and then what's the solution to make that easier? For two reasons. Number one, it's like to get you what you want, right?

So new technology, but it's also so you're not held ransom for just increases upon increases upon increases, right? Because if you don't have that option to move quickly, right?

Meredith: 00:19:54

Not finding comfort and complacency.

Brent: 00:19:57

I just got my renewal and it's a 40% increase. And you go, I only got 60 days before my renewal. What am I going to do now, right? I'm, I have to sign up, I have to renew, right?

So, so I think, and it's something we're investing in and heavily is like how do you make that to where you're not beholden to that anymore. You can go, okay, my business didn't increase 40%. Why is your fee increasing 40%, by the way? I'm going to switch and they, and they can't go.

You know, then at the very least you got negotiating Right. And I mean, you know, huge enterprises even. I mean, there's.

They're still spending millions of dollars for solutions that are out of date, and it's mainly because they're. They're hostage. So I think that's going to be. I think that's going to be a big. A big trend.

And obviously the big trends are always, you know, vertical markets that change. You know, I mean, who thought vertical?

Judy: 00:20:54

What do you mean by that?

Brent: 00:20:55

Well, like, you and I were joking about it before the call, right? About, like Blockbuster, right?

Like, you know, you know, okay, you would put all this research into, you know, the taxability of rental DVDs or whatever the case may be. No one saw streaming coming, right? So that's what I'm saying, like, vertical markets changing, right?

I mean, the communication, even software as a service. Software.

Service is a big one we see especially because, like, a lot of the software as a service are things that enable, like call centers and things that enable, like customer service. Like, hey, we providing a software, it measures how much time Susie's on the phone with somebody and how satisfied they are.

And, and we're tracking speech patterns. We're using AI to say, hey, every time these people call in, these are the problems. You know, all those sorts of things.

Well, you know, quickly that software has become a communications product and communication stacks are a whole nother animal. So it's like. So we're seeing verticals change a lot, right?

So, and then as a vertical changes, it changes taxability of the products that you used to sell because you're delivering them in a new way. So, you know, just things like that.

I always go, you know, especially people in our industry, we kind of balance back and forth between how much do we say? Because we don't want to scare everybody out of their. Out of their shoes, right?

Like, I was just doing a seminar actually down at IT Expo last week, and, you know, we're going on and on about like, a lot of the, you know, new fees and taxes and things like that are applicable in these industries. And I'm like going, okay, everybody in this room right now is sweating. And I'm like. And I'm like, look, you know, it is. It is. It's huge, right?

It's like even, like, like gross receipts, taxes and you know, just things like that that, you know, you know, and the government's just going to constantly find ways to find new avenues, revenue, especially as, like, they adjust the income tax if, you know, if they try to bring the income tax, you know. Right.

Judy: 00:22:56

Because the state. Yeah, Every entitlement. The federal. Yeah, yeah.

Brent: 00:23:02

But we go back and forth between, like, telling everybody, hey, like, this is real. This is what you have to deal with, and scaring the heck out of them, but at the same time going, well, yeah, but that's why we're in business.

Because, like, you don't have to do it. Like, you don't need to stay up at night sweating about it. You need to, like, just know who to call and then, you know, and then just interview.

Interview them all and make sure, you know, you're comfortable with, like, who. Who you're talking to. I was especially, like, on. On larger enterprise sales, we always say, like, hey, you know, our best.

Our best sales pitch is like, stump the chump. Like, you know, start asking. Start asking those kind of, you know, really kind of detailed questions and.

And then just see, you know, who you're talking to, who answers them the best honestly. And so, yeah, we kind of love those engagements. So, yeah, so you're kind of going back and forth between.

It's just, you know, expressing the complexity and the severity of it, but also, you know, not scaring the heck out of people because, I mean, that's one.

Meredith: 00:24:05

I think that's the perfect place to kind of end it.

And, Brent, so we thank you so much for kind of being a little bit of a market disruptor and, you know, giving our clients another option that's going to be flexible and nimble for them. So thank you so much for your time.

Brent: 00:24:20

Yeah, of course.

Meredith: 00:24:21

And spending your afternoon with us on the Saltivation podcast. We really appreciate it.

Brent: 00:24:25

Awesome. It was fun.

Meredith: 00:24:27

All right. And that's another episode of SALTovation. Till next time.

This podcast is for educational purposes only and is not intended, nor should it be relied upon as legal, tax, accounting or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.