Welcome to 2019 and Happy New Year! Each new year brings something we all LOVE to deal with. Tax Season. It can cause sweats and stress for some. Whether personal or corporate, taxes and tax planning are a critical component of our fiscal calendars.
In addition to corporate taxes, another tax area to mange is Sales & Use Tax. This tax is levied on the sale/purchase of goods and services, and varies on a state by state basis. Today, state revenue authorities are even more diligent in looking for additional tax revenue opportunities. One of those opportunities that became targeted in recent years is Use Tax. Purchasing companies are now required to adhere to filing and submitting these taxes based on each state’s tax code and regulations. Due to this, the states are becoming more aggressive with their audits of these filings.
So how does an organization stay on top of proper recording and submission of these required taxes?
Well the first step is capturing and reporting. An automated process that properly records purchase and delivery domiciles is critical in maintaining adequate records. Maintaining a database of master address records allows for the appropriate allocation and reporting to the specific states. Noting whether a sales tax was paid will also affect use tax filings. Capturing this data in a centralized process and database allows for proper management, reporting, analysis and filing.
Where is the best place for this to occur?
Typically, this will happen in the Accounts Payable process. It is here where we maintain vendor master records including addresses, general ledger allocations, charges and payment data. We can manage reporting out of this process and perform the appropriate analysis per state tax laws. Trying to manually look at potentially thousands of invoices on a monthly basis, and maintain proper controls around the process and reporting, can be an onerous task. This adds not only to the costs of processing but the time to process as well. With current industry timeframes pushing 3 to 4 weeks already in a manual process environment, any additional tasks may cause missed payment dates, credit rating blemishes, angry vendors and mismanaged cash flow for a company.
So, what’s the solution?
Most firms are evaluating and implementing digital automation of this stressful process. With this solution, one can eliminate the paper and manual processes inherent in todays environment, reduce time to process, and the risks associated with that as noted, eliminate input errors, effectively match PO’s to invoices and shipping receipts, eliminate duplicate payments and have a full audit trail and report database for all transactions. Not only will this allow tighter controls and reduced risk, but it also allows for better cash management and business analysis. If, and when, the states come to audit (which they will), the digital process and audit trail allows for better compliance and less intrusive audit process for the company while also including required specifics such as the proper use tax reporting.
How would a company embark on implementing a digital automation process for their Accounts Payable function? There are several options presented in the marketplace today, but each company needs to evaluate their pain points and business goals to determine the best fit for them. Some can handle low volume, easy-to-process accounts payable very effectively, but struggle to integrate or scale with higher volume that comes with growth or complexity that is typical as the business expands. Others are very robust in their functionality, but time consuming and costly to implement. The best solutions are configurable to the business needs of the organization, are dynamic, and offer scalability to be able to grow and change with the business itself. Digital data ingestion is also critical. If the data does not get captured accurately or requires immense human intervention to address exceptions, then the efficiency and benefits are lost. With these features in place, you now have a tool that allows you to make decisions on when to pay, how to pay and the ease with the correct components in your required tax reporting. This can also help with avoiding missed discounts, penalties for late payments of invoices, tax remittances and other operational risk with untimely information.
The best way to avoid problems with the taxing authorities is proactive, timely, accurate filings of your required tax responsibilities. A solution from a trusted partner that allows you to grow with your business is a key decision point in the selection process. Integration to your accounting and general ledger process is also critical. For the dynamic, growing company, a “one size fits all” option probably won’t fit like you would wish. Managing a successful business is hard enough without responding and dealing with an audit request from the Tax Man. Now is the time to digitize and automate to allow for better management, control, compliance and cash flow. Focus on success, not stress!