08 Apr Tax calculation differences between Salesforce CPQ and Billing
bu Suraj Sreekumar
Businesses struggle every day to consistently calculate taxes correctly. It’s a convoluted, complex task that’s made even more difficult by the fact that unscrupulous customers are always looking for ways to get around paying the taxes they owe. Would it surprise you that five percent of all purchases made with business exemption certificates are used inappropriately to avoid paying taxes on personal purchases? That’s according to a Brookings Institution report examining sales tax fraud in Florida. As difficult as calculating taxes correctly can be, it’s your legal job to always calculate taxes correctly. That’s how you stay above the law as a business, and that’s how you do right by all of your customers.
A foundational first step to ensuring your taxes are consistently being calculated correctly is to understand the Salesforce systems you rely on for tax calculations. There are key differences between how your Salesforce CPQ instance calculates taxes and how your Salesforce Billing system—embedded in your CPQ instance—calculates taxes. By understanding the differences between Salesforce CPQ and Billing, you’ll be better able to configure these systems and use them properly to your strategic advantage. Let’s explore three key differences to understand how taxes are calculated in Salesforce CPQ vs. how they are calculated in Salesforce Billing:
CPQ calculates estimated taxes; Billing calculates actual tax
It may be obvious that CPQ—the Salesforce system that generates quotes—provides estimated taxes, while Salesforce Billing—which generates the final invoice—provides final taxes. But what may be less obvious is that estimated tax and actual tax on the same order can actually be very different amounts. And it’s all a consequence of how CPQ vs. Billing performs tax calculations. CPQ is capable of estimating taxes based on very limited information (perhaps not even an actual billing address), while Billing takes into account the billing address and all of the complex rules that govern specific tax jurisdictions to calculate the actual tax. Thus, when you’re managing these systems, it’s important to understand that these two systems calculate taxes in two fundamentally different ways.
Billing lets you apply specific tax rules and treatments to orders
When a customer places an order, not every item in the order may be taxed the same way. Thus, a business needs to be able to apply specific tax rules and treatments to only specific subsets of the order. Salesforce Billing offers this flexibility; CPQ does not. What this means is that Salesforce Billing lets you apply a single tax rule to a broad group of items, while simultaneously letting you specify a different combination of tax rules and treatments for smaller subsets of the broader group. Moreover, Salesforce Billing (but not CPQ) can apply all of these rules and treatments automatically for specific companies you do business with; all you need to do is set up a company-specific legal entity and define which tax rules and treatments you want to apply to orders from this company.
Billing evaluates all tax-relevant information before calculating taxes
As soon as you generate a sales quote, Salesforce CPQ automatically and immediately calculates the estimated tax associated with that quote. This default auto-calculation feature is usually sufficient for generating a quote, but the timing of when the tax gets calculated can be problematic in some instances—and only Billing is designed to help you get around these shortcomings. For example, if you need your tax calculation system to first evaluate the tax codes for each product in the order, CPQ isn’t capable of delaying calculating the tax until after this action is completed. Similarly, if you need to override the default shipping address for one or more products in the order, only Billing can delay calculating taxes until after you have manually updated the address. In sum, because of the timing of when CPQ calculates taxes, Billing can evaluate tax treatments, exemptions, shipping address, and other tax-relevant information, while CPQ cannot.
Salesforce CPQ and Billing are two very different systems when it comes to how they calculate taxes for an order. And that’s by design: Each system serves a different purpose at a different stage of the customer journey. CPQ is designed to calculate estimated taxes, while Billing is designed to calculate final taxes—and each system uses different processes to determine when and how these calculations get made. Meanwhile, Billing enables businesses to apply specific tax rules and treatments to orders, while CPQ does not. Similarly, Billing evaluates all tax-relevant information before calculating taxes, while Billing does not.
Simplus is an expert at configuring CPQ and Billing for calculating taxes—and also helping you get the most out of each system. To learn how Simplus helped a warranty services provider use Salesforce to create an end-to-end, fully integrated quote-to-sale solution, please check out this Simplus case study on The Warranty Group.
To learn more about how to use Salesforce CPQ and Billing to calculate taxes seamlessly and reliably, please reach out to the implementation experts at Simplus. We can’t wait to show you how CPQ and Billing can be the optimal solution for all of your tax calculation needs.
Suraj is a Principal CPQ Strategist here at Simplus. A seasoned Salesforce Quote-to-Cash strategist focused on Salesforce CPQ and Billing, Suraj has global experience catering to enterprise and SMB customers across the ANZ, United States, and India. Suraj is proficient in managing client engagements and the overall relationship to ensure customer success and drive follow-on business.