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Summary
Taxes may be inevitable, but most finance departments will find they can cut costs, reduce error-related liability and facilitate audits by increasing transparency through the use of dedicated software  to manage sales and use tax payments. These departments, regardless of size, often struggle with issues that could be automated. And although sales and use levies and value-added tax (VAT) do not get the same attention as income taxes, they can be a significant part of a company’s tax burden, in terms of both the money involved and the time required to manage the process of determining and paying them. In large companies, tax people with deep subject-matter expertise toil with the limited aid of spreadsheets. Midsize companies may engage third parties, at considerable expense, to handle some or all of this work. Sabrix offers both types of companies dedicated tax management software. Large companies may wish to manage the software on their own premises, but both large and midsize companies can choose to approach it through software as a service (SaaS) hosted by a third party. Either way, they likely will see a welcome reduction in both cost and headaches.

Assessment
Tax calculations are not rocket science, but they are far from simple. When it comes to sales and use taxes, companies that operate in multiple tax jurisdictions deal with widely varying laws and rates that may apply locally, regionally, nationally or in some combination of the three. At any given time, each of these rates and the rules governing the assessment and collection of taxes may change. Indeed, in a given year a company may be subject to hundreds or thousands of changes. Each jurisdiction also requires companies to file periodic specific reports in a specific format. As agents of the taxing authorities, businesses gain no benefit from the taxes they collect yet bear the burden of accounting for them and proving compliance with the law. Since taxes are anything but strategic, why not minimize the time, effort and risk of noncompliance?

Sabrix’s software automates the tax calculation process. Larger enterprises often use the Sabrix Application Suite; small and midsize ones (by our definition, those having less than 1,000 employees) probably will choose Managed Tax Service (MTS), the SaaS offering. The latter enables companies to outsource the full range of their sales, use and VAT management. This includes analyzing a company’s business activities to make the critical determinations of where it has a “nexus” that gives rise to a tax liability and which transactions give rise to a tax liability, calculating the amount owed, and preparing returns and reports. MTS also provides support and documentation for audits. The system has prebuilt integration with Microsoft Dynamics GP and NAV as well as SAP All-in-One, Business One and R3. For many small and midsize companies with even a moderate number of nexuses, using a managed service can save a considerable amount of valuable time (that they can spend more productively) on each element of sales and tax management. It also can reduce compliance-related liability and – unless the record-keeping is already flawless – probably reduce time spent in tax audits.

In contrast, Sabrix Application Suite is designed for on-premises deployment in larger enterprises. For them there are industry-specific solutions for chemicals, oil and gas, pharmaceuticals, retail and technology. Since integration with a company’s existing systems is critical, the company offers prebuilt connectors to Oracle’s E-Business Suite and SAP (a basic U.S./Canada version, a version for global users, and integration with its Goods Movement module). There are connections to Ariba’s Buyer and Invoice modules, and Sabrix’s consulting organization offers PeopleSoft integration services.

The tax software in both MTS and the application suite for larger companies incorporates tax management with research that tracks laws to ensure compliance with applicable codes for the taxing authorities in the U.S. and 170 other countries. It calculates taxes through a range of factors that can affect applicable rates, including the type of product, whether the shipment is intra- or interstate, tax holidays, tax caps and tiered taxes. Outside the U.S. the software handles European Union (EU) taxation and the multilevel tax systems in Brazil, Canada, India and other countries. Information contained in invoices drives calculations of VAT obligations in all of the relevant jurisdictions and generates the required journal entries. VATs, too, are complex to calculate since they vary depending on the product, which parts were produced where, by whom, where it is shipped from, through and to, and so on.

Market Impact
Sabrix competes with other vendors that specialize in sales and use taxes, including ADP/Taxware, Avalara, CCH, Corptax, Thomson and Vertex. The market for sales and use tax software is relatively mature in the large company segment, but it is much less well developed for the midsize (100 to 999 employees) portion, which could have significant potential. We believe midsize organizations have been slow to adopt this capability because they have not had the money to justify purchasing an on-premises solution nor the IT staff to maintain and support it. By offering automation through a service, Sabrix should be able to tap into what we see as a growing demand for this more economical and practical solution for midsize companies.

Recommendation
Many companies – especially midsize ones – might think that they can handle their sales and use tax obligations using their ERP system and a bunch of spreadsheets. This may be the case for companies operating in a limited number of jurisdictions. However, those that have more than a few nexuses for sales, use and value-added taxes should consider automating this process. Managing taxes is an area where information technology can have an immediate, positive impact on a company’s bottom line. Many will find that applying it is cost-effective, especially midsize companies that can use a managed service approach instead of installing, maintaining and updating a dedicated application and related tables.

In selecting a vendor, buyers of sales and use tax software and services should assess the two main elements of the offering: the application itself and the “content” – the breadth of the tax schedule information – the vendor provides. The key issues for the application include the breadth of functionality (ensuring it can handle all of the routines and functions related to these taxes), analytical and reporting capabilities, the ability to integrate with other parts of the company’s accounting information systems, scalability to the company’s needs and ease of use. As for the particular content, the vendor should be able to integrate up-to-the-minute tax rate schedules for all jurisdictions in which the company operations. On top of this, buyers – particularly small and midsize companies – should feel comfortable with the competence and availability of their vendor’s consulting organization, which will be key to managing the process well. We recommend that companies that are looking to automate their sales and use taxes consider what Sabrix has to offer.