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Tax technology prep: Consider these 4 areas when digitally transforming your business


With the coronavirus disruption accelerating the business need for digital transformation, company leaders must ensure that tax considerations are not left out of the equation.

Our series on tax technology has looked at some of the signs that indicate when a business is behind on how it handles its tax transactions. Also, having an updated, automated way to account for taxes and be compliant helps the bottom line and curbs the chance of audits. As Vertex’s tax expert Mike Bernard said: “Procurement can be a key player in all of this because they have visibility into spend, they work across departments and they collect the data for analysis.

“That’s why auditors go to procurement first, but with the technology that procurement professionals rely on, they can provide detailed, up-to-date books. And that can make auditors happy. Audits tend to be triggered by discrepancies in how you’ve reported your financials before, so if you’re consistent and you have audit-ready returns because of your digital capabilities, then you’re better off.”

Large corporations with tax departments have processes and procedures for their business operations, but properly handling taxes is an issue for the thousands of smaller businesses now facing choices about how to automate their operations. The tax expertise in smaller companies or even some corporations may be limited to a couple of people, but tax technology can be a force multiplier by baking in a range of tax expertise into every transaction across the business.

In the first article in our look at tax issues and digital transformation, we noted that problems with tax transactions include overpayments or underpayments, penalties for not complying with the patchwork regulations across state and national borders, the risk of audits, and the lack of tax expertise in departments that handle technology — like IT, sales, finance and procurement.

Tax technology can curb these problems, add visibility and boost confidence in the business. Let’s take a look at what businesses should consider when looking for tax technology.

4 areas of focus for tax technology

Much like there is a technology category for contract lifecycle management or even something niche like leasing spend, the area of taxes has its own technology needs.

Let’s examine four tax technology areas:

  • Identify/Calculate — Determine what’s taxable and how to calculate it in real time so customers and the business can go as fast as necessary. You’ll need to apply this expertise to all of your sales and purchases that are handled across e-procurement catalogs, e-invoicing and AP automation. That real-time calculation is something that manual processes cannot come close to doing. And as your business becomes more digitally mature and as it grows, this solution should be flexible enough to be scalable.
  • Data management — This technology is necessary to handle the large amount of information generated by digital transactions. Having the data validated and enriched improves the quality so that the end-to-end technology works smoothly, facilitates automation and ensures confidence. Proper data management reduces the risk of audits. And it also helps cut down on the overpayment of sales taxes, use taxes or VATs, and that ensures a proper cash flow and limits exposure to possible penalties.
  • Improved compliance and reporting — A digital system for handling taxes and collecting data on it reduces compliance errors, ensures proper payments to all jurisdictions involved, and boosts accuracy for faster and more reliable reporting. It reduces the amount of labor needed to compile reports, and it saves your staff time so that more strategic projects can be pursued. Once a system is in place, a company may recognize a need to add services or outsource some work for compliance and reporting. For companies that work across state lines or international borders, tax technology can account for the variations in regulations facing you and your customers. And as those laws change (and they do so frequently), it’s easier to update the technology to comply with those changes.
  • Document management — The tax process has a lot of certificates, forms, files and archives. Technology in this area can improve searches, cut time for reporting and improve the customer experience. For example, customers should be able to create the correct exemption certificates and digitally submit it to your business. And since businesses can’t avoid all audits, having technology for document management will help you get ready for audits faster. Pulling information for different regions or time periods is easier with a searchable digital archive.

These four technology areas should be considered for their own capabilities and how well they integrate with your existing ERP and any individual procurement modules you have.