Related Topics:
			Business Research: Business, Finance, Workforce Vendor Research: Epicor, Infor – Extensity/Systems Union, Intacct, Lawson, NetSuite, Oracle, Sage, SAP
			Printer friendly version Email this article Send feedback to editor

Summary
Some corporations have adopted systems to manage sales and use taxes, but far more still waste their time and increase their risk by using desktop spreadsheets. To be sure, some companies can do without a dedicated application, but as companies grow in size, geographic distribution and complexity, they are increasingly likely to need to use software rather than the specialized and expensive talents of their in-house tax staff to handle these liabilities. Taxes are one of the largest expenses that companies incur. Being able to minimize this tax exposure, reduce the cost of tax audits and minimize the probability of penalties for non-compliance are important reasons to consider dedicated tax management software. Intensifying efforts by states and other government entities to increase revenue through more aggressive audits is likely. In the United States, it's also growing more likely that states will find a way to implement taxes on Internet purchases. Both of these are good reasons to look at sales and use tax software packages, especially if your company has more than 500 employees.

View
Sales and use taxes are about to become considerably more of a problem. States are looking for money. In this situation in the past, not only have tax rates gone up but enforcement has increased. More audits mean greater exposure to fines and penalties unless your company's ability to calculate its liability is nearly flawless. Moreover, we think sales taxes on out-of-state purchases are a ripe target for states with large populations and high rates. (Until now, federal tax rules designed to encourage Internet commerce have prohibited states from imposing these taxes unless the seller has a physical presence in the jurisdiction.)

In any case, it's likely time your company looked into managing its sales and use taxes more effectively. It's even more urgent if your organization does business in multiple states or if more than 20 percent of your revenues come from the Internet or from states where you don't have operations currently. The right software, deployed as one of the first steps toward Tax Information Management, can cut the cost of figuring out what you have to pay and can pay for itself in avoiding penalties and fines and in the time saved in preparing tax filings.

If you think your ERP system can do all or most of the work, you're wrong. The key elements of any tax management system are its ability to keep up with ongoing changes and its ability to automate the application of the right tax at the right rate. Tax logic often isn't; it can be complex and convoluted. There can, for example, be important distinctions in the tax status of a customer depending on its location or the tax treatment of products at that locale. Companies operating internationally have to contend with additional jurisdictional and reporting issues. Here again, tax software can deal with the complexities of, say, shipping something between two European Union countries and applying the correct value-added tax for that specific product/country combination. If you're claiming an exemption, all documents must reference the specific statute that provides that exemption.

Keeping track of all of these tax-related issues is a key component in addressing the organization's financial performance management processes. In our view, dealing with taxes and financial performance requires a commitment to and investment in Tax Information Management, using a data mart or data warehouse to maintain sales tax data.

Assessment
In today's economy the last thing many companies want to do is invest in new software. However, when you begin to consider the cost of people's time in preparing and checking your sales tax returns over the next five years, the cost of an audit, and the magnitude of the penalties your company could incur because of errors, sales and use tax software may look worthwhile. Also, midsize companies may find there are software-as-a-service (SaaS) options that bring this capability within reach. Even if you think you have your sales and use taxes covered with your manual processes, you should look into adopting this software to save time and money - and to prepare for a future that inevitably will include aligning the organization to the needs of financial performance management.