Automate your sales and use tax process to reduce costs. By Greg Rosser

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1 Automate your sales and use tax process to reduce costs By Greg Rosser

2 Automate your sales and use tax process to reduce costs 2 There are two ways to impact the bottom line of a company either increase revenue or reduce costs. Corporate tax departments typically do not have sales people driving revenue on their behalf. That means driving costs out of the system is the most realistic way to have a positive impact on profits. Changing office supply vendors and putting off the obligatory computer upgrades another year or two are fairly common cost-cutting measures in corporate tax departments. But what about enhancing manual and systematic processes through automation? Executed properly, a company can reduce expenses and free up staff to perform higher value tasks. We will discuss the most common areas targeted for improvement in an organization from a sales and use tax perspective, benefits that can be achieved from improved systems and processes, and some considerations for successful deployment. Common candidates for automation Every company has unique characteristics resulting from their industry, location, products and services, and process for capturing information in their financial systems. These factors can influence the type of enhancements and the extent to which improvements are needed. The following are common areas targeted for improvement: Systematic taxability decision management Many companies employ third-party tax engines by integrating them with Enterprise Resource Planning (ERP) or other host financial systems. Up-to-date information Most companies struggle to keep current on taxing authority issues such as tax rates, geographic identifiers for rate and taxability determination, and complex tax logic. Document accessibility Having access to forms and historical documents such as tax returns, business licenses, exemption certificates, work papers and tax authority notices can be critical. Calendars Management of due dates through the use of tax calendars can ensure nothing falls through the cracks. Transaction storage and retrieval Direct access to transaction storage and retrieval can also increase efficiency by eliminating reliance upon other organizations, such as information technology services. Compliance process Streamlining the tax return compliance process will eliminate unnecessary or duplicative work. Payment process access to electronic information can lead to automated data gathering and produce streamlined payment processes.

3 Automate your sales and use tax process to reduce costs 3 Automation benefits Implementing improvements by enhancing processes or introducing automation can yield a number of benefits. With proper planning and execution, companies can reduce reporting errors in tax determination and compliance. A number of tax software vendors provide tax codes with pre-set taxability determinations. This allows companies to map their own items to those provided by the tax vendor, which reduces the workload involved in maintaining taxability research. Alternatively, a company can add their company-specific item codes to the software and set their own taxability determinations. It should be noted that many tax engines in today s market provide a number of standard data elements, or tax drivers, plus the ability to extend the list of drivers desired by a company to arrive at a proper tax decision. By providing a means to determine taxability and apply accurate tax rates systematically, unnecessary cash flow can be reduced. For example, not calculating and remitting use tax in required situations can lead to additional cash outlays for penalties and/or interest. Likewise, improperly calculating and remitting use tax where no tax is due also leads to unnecessary cash outlays not to mention the costs associated with trying to recover overpayments. Validating tax billed by a company s vendors is another opportunity to keep cash outlays in check. Tax engines can validate tax billed by vendors and return the correct amount of tax. The financial system can then produce automatic short pays or accrue additional tax if the vendor has under-billed the tax amount. Employing third-party tax software places the management of tax determinations in the tax department instead of other areas of the company that are not well equipped to handle such decisions, for example, the customer service or accounts payable departments. These departments may only have access to a tax decision matrix compiled several years ago and updated rarely, if at all. The ability to override taxability decisions, tax rates or tax amounts in non-tax organizations leaves the tax department in a highly reactive situation with potentially hundreds of thousands of dollars paid to taxing authorities improperly, or in other cases, not paid at all. Another benefit of tax automation is that tax departments are now free to access their own information. This may be in the form of exemption certificates, reports or data extracts for use in analysis and, more importantly, for use in providing tax auditors with information in a timely and accurate fashion. Depending on the level of priority, it may take several months for a tax department to receive a data file from a company s own IT organization containing information required for a state auditor to review. These delays can adversely affect relations with the auditor requesting this documentation. Automated tax solutions also provide timely and accurate tax rate and tax authority updates. Automation can accommodate complex tax situations, such as surtaxes, maximum taxes, tiered taxes and single article taxes. It also simplifies the handling of non-standard financial system transactions, such as tax-only credits and debits. Leveraging automated solutions can also lead to reduced compliance cycles. Several software packages provide signature-ready tax returns, EDI (Electronic Data Interchange) filing capabilities, locationspecific reporting and payment request forms that can be configured to a company s general ledger reporting requirements. Some software packages have the capability to build data extracts, which can

4 Automate your sales and use tax process to reduce costs 4 lead to further solutions in the form of EDI or XML (extensible Markup Language) files for other needs and improves the likelihood that general ledger reconciliation can be accomplished by a proverbial push of a button. Finally, utilizing automated solutions can assist in managing nexus. Many solutions are capable of identifying transactions that require review to determine if additional business registrations are needed. Alternatively, this can also serve as a control mechanism to identify improperly coded information. Automation can also increase confidence in overall internal controls and allow for easier documentation of processes for SOX or related needs. Success factors There are many factors that can drive the overall success of an automation project. Here are a few recommendations to help ensure success. Get support from upper management Automated solutions can result in some form of change management, so this initiative will need to be accepted widely. Consider laying out a return on investment when making the case for automation and, if possible, incorporate that into a formal business plan to show a level of professionalism and care. Identify people or departments impacted and set expectations Explain the project so they understand how it may impact them. Many times a project kick-off meeting is sufficient to deliver this message. Conduct an honest review of the current state of the tax organization A thorough organizational process review can uncover areas for improvement and prioritization. Talk to software vendors and ask questions Try to raise specific questions regarding a company s situation and facts and ask how those would be handled. If a system is being upgraded, distinguish between an upgrade in the form of a service patch versus an upgrade that requires a full reconfiguration. Ask if additional software licenses are required as separate cost items. Understand the corporate IT policy for external applications Some IT organizations have policies that disallow certain kinds of software solutions or technology platforms, and for good reason. Make sure IT resources are plugged into the application review process and maintain good relations with that department, as they will be able to provide assistance throughout the initiative. Guard against non-tax departments unilaterally choosing the tax solution For example, the final decision on which tax engine is used by the tax department may be made by the IT department. Occasionally, an IT resource may make this decision based on tangential knowledge of an application used at a previous employer. Create a plan In other words, use a work plan. Identify all necessary tasks through each phase of the project. You will be able to keep things on track if you can assign people to each task. Set expectations by assigning due dates, but be reasonable and allow for contingencies (don t forget

5 Automate your sales and use tax process to reduce costs 5 holidays and vacations). Set milestones with target dates. Project sponsors use milestones as a means to gauge the health of a project. Use proper documentation The ability to support project decisions is much easier with documentation. This can also assist other project members in getting up to speed quickly should resources be added. The pre-project state, the post-project state, decision-making during the project and testing should all be documented. Proper documentation can be quite voluminous by the end of a project. Don t forget training Make sure the training needs inside or outside the organization, as the case may be, are identified. User guides will be effective when preparing to roll out training. Designate power users Depending on the form and level of automation introduced, there may be a need to identify one or more power users. It s also a good idea to have a power user conduct user training. Define the Mission Accomplished standards Make a list of the things that must be done in order to say the project was completed successfully. What next? Considering the existing state of tax processes in your organization, ask the following questions: Can things be done better than they are today? If processes are improved, will the company be better off? Can people be redirected to more strategic tasks? If processes are improved, will the tax department be viewed as offering more value to the company? Can process improvements reduce the amount of overtime invested by the tax staff? Will process improvements help manage risk and enhance internal controls? Can the tax organization have a positive impact on the bottom line by enhancing its processes?

6 Automate your sales and use tax process to reduce costs 6 About the author Greg Rosser is an Executive Director and the national Sales and Use Tax Automation practice leader at Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory organizations. He has 20 years of process automation experience in both industry and public accounting. He has developed numerous custom tax applications and has integrated third-party tax engines with various financial systems. Greg can be reached at greg.rosser@gt.com. Tax professional standards statement This website supports Grant Thornton LLP s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document we encourage you to contact us or an independent tax advisor to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with, or attached to this document is not intended by Grant Thornton to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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