IPT 2013 Sales & Use Tax Symposium Monterey, CA · PDF fileIPT 2013 Sales & Use Tax Symposium – Monterey, CA Automating Use Tax Accruals Without Interfering With Accounts Payable

IPT 2013 Sales & Use Tax Symposium – Monterey, CA

Automating Use Tax

Accruals Without

Interfering With

Accounts Payable

2

Presenters

Richard Hofrichter, CPA, CMI, Partner – Indirect Tax – Grant Thornton LLP

– [email protected]

– Office (704) 632-6810

– 201 South College Street, Suite 2500 Charlotte, NC

Jason Abney, Tax Technology Manager – AutoZone, Inc.

– [email protected]

– Office (901) 212-2368

– 123 South Front Street, Memphis, TN

3

Learning objectives

Determine when it is appropriate to automate

the use tax accrual function

Understand the options for automation and

which ones are best suited for your needs

Identify the use, benefits, and architecture of

a batch-based use tax accrual system

Agenda

The decision to automate

Different approaches to automation

Batch solution overview, options, and details

4

AutoZone’s Decision to Automate

Multiple Enterprise System Changes

– ERP Module Implementation/Upgrade

– New Point of Sale Deployment

– Consolidation of Ecommerce Sites

– Integration to SaaS Sold by AutoZone

5

AutoZone’s Decision to Automate (Cont.)

• Need for Centralized Tax Determination

– Unqualified Individuals Making Tax Decisions

– Labor-intensive Tax Matrix

– Sales & Use Tax Rate Maintenance

– Manual Accruals

– Multiple Tax Rate Service Providers

6

Risks Associated with Manual Review

Error identification and corrective measures limited or not possible

100% detailed review not possible

Decentralized taxability decisions unreliable

Overstated taxes result in negative cash flow

Understated taxes result in audit assessments, interest and penalties

Manual system perpetuates inconsistent treatment

7

Questions?

8

Agenda



Batch solution overview, options, and details

9

The Approaches to Use Tax Accruals

Manual Methods

– Tax personnel review fixed asset or key AP invoices

– AP clerks are trained to accrue use tax when applicable

Semi-Automated Methods

– Tax rates loaded by ship-to location and calculations are made by the AP system, but triggered manually

– Formula based use tax accruals

10

The Approaches to Use Tax Accruals continued

Automated Methods

– Real-time integration of a tax system

– Batch method using a tax system or process

– ERP calculation using loaded rates and rules

Alternate Method

– Let the auditor find it approach

11

Considerations

How are use tax accruals currently handled?

Are vendor-charged sales taxes entered?

Are Purchase Orders frequently used?

What has your audit history been? – Regular audit cycle?

– Overpayments found?

How are A/P clerks evaluated? – Will they be given extra time for tax issues?

– Would short-pays and adjustments create a major administrative burden on A/P?

12

Considerations continued Where is the best data available to make a tax

decision? – Purchase Order

– Invoice Payment (Voucher Entry)

– Subsequent Distribution

Do you need to include sales/use tax on Purchase Orders for variance pricing?

Do you want to review transactions before an accrual is made?

13

Real-Time Use Tax Automation

Tax system is integrated throughout the ERP

Use Tax is calculated within the ERP system as part of the transaction – Purchase Order

– Goods Receipt

– Accounts Payable (voucher entry)

– Inventory Movement (some ERP’s)

Tax calculations are made in real time

14

Real-Time Use Tax Automation Architecture

Purchase

Order

Entry

Purchase

Goods

Receipt

Accounts

Payable

Voucher

Compliance

Program (i.e.

Q-Returns)

Tax Management System

Tax

Reporting

Utility

Transaction

Reporting

Utility

ERP

System

Tax Calculation Package (i.e. Sabrix, Vertex, etc.)

General

Ledger

System

15

Batch Use Tax Automation

Data is pushed or pulled from the ERP system and processed in a Use Tax system

Use Tax system is independent of the ERP

Use Tax is calculated off-line using data from the ERP – Accounts Payable (voucher entry)

– Can process Purchase Order data

– Can process Inventory Transfer data

Tax calculations are made after the fact

16

Batch Use Tax Automation Architecture

Purchase

Order

Entry

Purchase

Goods

Receipt

Accounts

Payable

Voucher

Compliance

Program (i.e.

Q-Returns)


Tax

Reporting

Utility

Transaction

Reporting

Utility

ERP

System


General

Ledger

System

17

Questions?

18

Agenda



Batch solution overview, options, and

details

19

Batch Approach Options

Use a third party hosting provider to reduce infrastructure needs

Use a service bureau to reduce staffing needs

– TM1 by DTS

Use a Tax Management System (TMS) loaded locally or hosted

– Can utilize your current third party tax system (Sabrix, Vertex)

– Can utilize internal tax rates and decisions

– Can be hosted to reduce infrastructure needs

Consider your needs when evaluating options

– Load historical data to look for refunds

– Process current data for current use tax accruals

– Look for opportunities to address vendor issues

20

Benefits of the Batch Approach

Does not interrupt the A/P process for tax discrepancies

– A/P clerks do not get involved in short-pay decisions

– Reduced administrative effort by A/P in dealing with vendor payment adjustments resulting from sales tax issues

Reduced data entry requirements possible

– Entry of actual tax charged is not necessary, but helpful

Sales taxes charged by vendors can be easily reviewed

– Actual sales taxes charged are stored with accrual information

– Taxed nontaxable purchases can be easily identified

Transaction data can be pre-validated before calculation

– New companies can be identified and established in the tax system

– New taxability driver values, such as chart of account changes, can be identified and their taxability determined before a tax calculation is made

21

Benefits of the Batch Approach continued

Taxability decisions can be reviewed at the transaction level by a tax professional before a tax accrual is made

– Questionable transactions, such as those with mixed-use G/L accounts, can be reviewed manually before processing

– High-dollar transactions can be manually reviewed to ensure correct decisions are made by the taxing system

Some isolation from ERP system upgrades/changes

Additional calculation ability for unusual events

– Allocation of a single transaction to multiple jurisdictions

– Can handle temporary storage/second situs issues

Allows for other external feeds to be processed as well

– The TPS can be built to allow for generic file formats from any transaction source, including Excel files

– Can also allow for manual entry of transactions

22

Limitations of the Batch Approach

Does not prompt A/P clerks to short-pay taxes to vendors

– This is a mixed blessing, but results in potential overpayments to vendors until identified and fixed

– Reports from the TPS can be used to identify vendors erroneously charging taxes or the wrong tax rates

– Reports for the TPS can also be quickly used to pursue vendor and tax authority refunds

– Taxes have already been paid to the vendors before the overpayment is identified

Does not include tax to be added to Purchase Orders

– Can not be used to guide vendors if they should charge tax

– Does not allow for adding the tax amount to the PO ‘budget’

23

Limitations of the Batch Approach continued

Can not include tax for unit pricing and budgeting issues

– For a PO, the taxes either charged or accrued become a variance

– If taxes should be added to inventory for withdrawal, this is done at the G/L level rather than the item level

Use taxes accrued on fixed assets are not included in the original basis of the transaction

– The tax amount would be sent as a journal entry from the TPS

– The original asset could be adjusted, or a new child record created

Tax accrual information is not included directly in the transaction

– The tax accruals are posted to the G/L through journal entries

– The JE description or other information will link the entry to the original A/P transaction from where the expense resulted

24

Batch Versus Traditional Real-Time Integration

Requirement

Real-

Time

Batch

Prompting A/P clerks to short-pay tax charged by

vendors Yes No

Evaluating sales taxes charged by vendors for

refund opportunities No* Yes

Including expected taxes on Purchase Orders Yes Yes*

Reviewing taxability decisions before tax accruals

are made automatically No Yes

Include sales or use tax amounts in variance

pricing for Purchase Orders and Inventory Yes No*

25

TMS Overview and Uses

Determining use tax accruals on P2P transactions, typically

at the accounts payable level, which is performed through

extraction of transactions from the ERP system and

processing them using a standalone Tax Processing System

that communicates with the tax product being used by the

organization.

Monthly tax accrual determinations

Reverse audits

Vendor tax analysis

Sales tax batch processing

VDA/Mitigation

26

TMS Overview and Uses

Data is pushed or pulled from one or more ERP systems and processed in a Tax Management System (TMS)

The TMS is developed based on the organization’s needs, and is independent of the ERP system

Use Tax is calculated off-line using data from the ERP

– Accounts Payable (voucher entry)

– Can process Purchase Order data

– Can process Inventory Transfer data

– Easily supports other data sources

Tax calculations are made after the fact

Typically, a third party tax system is beneficial but TMS can be standalone

27

Data Extraction and Process Flow

Transaction

Reporting

Utility

Purchase

Order

Entry

Purchase

Goods

Receipt

Accounts

Payable

Voucher

Compliance

Program (i.e.

OneSource)


Tax

Reporting

Utility

ERP

System


General

Ledger

System

28

TMS and User Interface Examples

Multi-National Manufacturing and Services Company

– Using SAP MM and A/P Integrated with Vertex O-Series (Real-Time)

– Have several other SAP instances not integrated

– Also have several legacy systems for purchasing/accounts payable not integrated

Implemented O-Series for Use Tax

– TPS allows all external systems to feed into the same O-Series instance as serving SAP real-time

– Allows for additional data feeds to be defined in the future

– All data resides in one place for audit and compliance needs

TPS was built in .NET using an MS SQL Server database

29

TMS Home Page

30

TMS Data File Upload

31

32

TMS Workflow Management

TMS Transaction Review

33

TMS Tax Decision Review

34

TMS Filtering Transactions

35

TMS Changing Taxability

36

TMS Vendor Tax Review

37

TMS Data File Setup

38

TMS Data Transformation Rules

39

Home | Back | My Account | Feedback | Vertex | Logout

TMS Mapping Table Example – City Overrides


40

TMS Journal Entry Output


41

TMS Mapping Table Example – City Overrides

42


TMS Project Example Conclusion

Pros

– Allowed seamless integration of multiple external data feeds

with their existing Vertex O-Series product

– Added the ability to process SALES transactions in a batch

mode for additional data sources

– Allowed for pre-validation and review of select transactions

– Handled data issues through transformation rules

– A/P clerks were not interrupted by any tax questions

Cons

– Transaction tax data was not directly attached to the

transactions

43

Example: Use Tax Automation

Leading provider of cable TV, internet, entertainment, information, and communication services

Run Oracle/OneSource Determination for Fixed Asset Procurement

No formal tax evaluation and accrual process for: – Expenses

– Inventory Transfers

– Procurement Cards

Required a single file format for journal entry uploads and summarized compliance output

44

GT Client Server Batch Solution

45

Expense Use Tax Automation

46


47


48

Inventory Transfer Use Tax Automation

49


50

51


P-Card Use Tax Automation

52


53


54

Questions?

55

Documents

IPT 2013 Sales & Use Tax Symposium Monterey, CA · PDF fileIPT 2013 Sales & Use Tax Symposium – Monterey, CA Automating Use Tax Accruals Without Interfering With Accounts Payable