The cost and risks of sales and use tax compliance continues to increase, creating burdensome issues for tax departments to manage. In fact, according to an Aberdeen Group survey published in February, 2014 - 45% of organizations surveyed want to reduce the amount of labor involved with sales & use tax compliance. How can tax managers accomplish this goal? The most effective way to reduce labor time and audit risk, is to automate the process through a software solution implementation.
A June, 2011 Aberdeen Group study of 159 organizations indicates labor hours and cost associated with the sales & use tax compliance process vary among organization size, with an average annual cost of $40,285.38. Further, the study found that an audit increases the cost of compliance by 51%, that’s right an audit doubles your annual cost of compliance! The conclusion of the Aberdeen Group’s survey can be summarized as manually managing the process create errors which “…have contributed to negative audit results subjecting companies to have fines/penalties and cost corrective labor”
Reducing the audit risk and associated labor costs, is a sure win adding value to any organizations bottom line, while meeting the needs of the tax manager. Choosing the right software and implementation partner have a huge impact on your ability to attain that goal. The following are best-practice considerations and recommendations when exploring software solutions:
- Build Your Business Case – Your stakeholders will surely ask why you need software to remain compliant. Anticipate your stakeholder’s questions and come prepared to talk quantitatively about those risks, costs and resource constraints.
- Do your due diligence – What solutions do your competitors use? Are they happy with their solution? What are the gaps or un-answered issues with each solution? What solution most smoothly integrates with your existing ERP system? Managers are often happy to provide their opinion on the software solutions, their implementation partners and their overall experience from a project perspective, you should be confident in relying upon the advice of your professional peers.
- Find the right implementation partner – Not all software vendors offer professional services, and not all professional services they do offer are a good fit for your particular project. Much like finding the right software fit, you should also consider an implementation partner. Many vendors offer recommendations via their certified implementation partner programs.
- Be realistic – Software integration's take time and money, to ensure that you are maximizing the solution you want, be realistic about the timeline and the outcome. A typical medium sized company takes six months to implement a tax solution. In the first year post implementation, often the labor time has reduced but the audit savings are yet to be seen as prior years are still the primary audit focus. Generally, three years post implementation is a good indication of the overall savings the solution has provided your organization.
 Aberdeen Group “Effective Sales & Use Tax Management: Reducing Errors Productivity”. May, 2010.