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Indirect Tax

Building a better business case: 5 ways to demonstrate ROI for sales tax automation

To build a persuasive business case for sales tax software, professionals need to explain how automating certain tax functions and improving reporting and analysis will benefit the company as a whole. Greater efficiency, more accuracy, and better analytical capabilities are all wonderful talking points, but they don’t support an investment for sales tax software. The best way to create enthusiasm and justify a spend for sales tax automation in the C-suite is to illustrate, with concrete examples, precisely how the technology will improve operations, generate savings, and boost the bottom line.

In other words, don’t tell your CEO why tax software is a wise investment – show them. Specifically, you need to show the technology’s return on investment (ROI). Keep reading for 5 ways to calculate and communicate ROI in your business case for sales tax automation.

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  1. Avoid reporting errors and incorrect sales tax calculations

Sales tax software can reduce costly tax liabilities in other ways as well.

For example, external audits are typically triggered by reporting errors, incorrect tax calculations, or anomalies – such as issued resale certificates or non-remission of use tax –  that invite regulatory scrutiny. Such errors, even if they are unintentional, often suggest to regulators that other violations may be hiding in the books.

Tax engine software virtually eliminates these types of accounting errors by providing consistently accurate sales and use tax, value-added tax (VAT), and goods and services tax (GST) calculations that don’t raise red flags. In the event of an audit, a tax engine can instantly provide a defensible and audit-ready data trail, saving both auditors and companies a considerable amount of time, money, and hassle.

  1. Reduce sales tax compliance liabilities from audits

Tax audits are one area where software capabilities can make a dramatic difference. Audits are far less painful when you have the right automation and reporting tools at your disposal – but that reason isn’t likely to move the needle with executives. Your C-level audience will be more interested in hearing about audit-related savings.

One ROI strategy is to research how much money your company has paid in penalties and interest over the past several years, including the costs associated with addressing regulatory concerns and, if applicable, the time and effort necessary to protect the brand.

When presenting your business case for sales tax software, executives who have felt the sting of increasingly aggressive regulators may be receptive to such questions as:

  • How much money would have been saved if the company didn’t have to pay those penalties?
  • What if the company didn’t have to spend so much time and effort on audit defense?
  • How much organizational friction could be eliminated if such problems didn’t exist?
  1. Eliminate sales tax overpayments and erroneous charges

Potential savings can also be realized by identifying instances where taxes were overpaid.

For example, most ERP and purchasing software can be configured to identify charges by – and paid to – specific vendors. While it is impractical to review all of a company’s invoices, a workable strategy is to identify the company’s top vendors and review their invoices for possible errors in the past year. Pull the invoices to see if the company paid any unnecessary taxes, such as a vendor charging sales tax when they shouldn’t have.

If multiple instances of tax overpayments exist, that information should be used to illustrate how sales tax software can prevent such errors from occurring in the first place, thus saving money.

The same basic approach can be taken by running GL account and purchase locations. Again, focus on areas that should be non-taxable and review a sample of invoices to verify the validity of taxes charged and paid.

  1. Achieve non-quantifiable savings by freeing up your sales and use tax team for higher-value work

In addition to quantifiable ROI savings, sales tax software can also provide both intangible and hidden benefits – benefits that might not immediately return cash but can nevertheless improve the bottom line over time in a number of ways. One example of a hidden cost that requires consideration is labor associated with full-time employees.

Whenever the subject of “automation” comes up in a tax department, many tax practitioners are concerned that their jobs will disappear, or they wonder how their responsibilities will change if the routine, transactional parts of their job are handled through automation. As an example, let’s assume you and your team are spending 400 hours per month on your compliance process, and a tax automation tool could reduce that to 100 hours per month. That would free up 300 hours per month that could be spent on higher-value tasks that require your unique tax expertise.

What might those activities be? Here are a few ideas:

  • Use indirect tax data to identify tax credits and monitor nexus thresholds
  • Conduct forward-looking data analytics to identify risks and opportunities
  • Develop alternative tax strategies
  • Research potential savings in the supply chain
  • Conduct more thorough self-audits
  • Enhance the tax department’s strategic advisory role in the company
  • Improve tax processes to make them more efficient
  • Explore and apply advanced features and functionality of your sales tax software
  • Use sales tax software to identify areas of inefficiency, error, and waste

Any one of these activities could yield savings and insights that might not otherwise  be possible. These benefits are not necessarily confined to the tax department, either. The ability to identify tax liabilities on purchase invoices could help the procurement team find hidden areas of waste in the supply chain. If, for example, the company purchases the same widget from three different states, but one charges 4% tax, followed by 6% and 10%, tax automation software can flag these discrepancies, and that data can be used to reassess the cost-effectiveness of that specific supply chain partner.

Likewise, if you carry a FAS 5 (ASC 450) indirect tax liability on your balance sheet, sales tax software can reduce that liability over time, which will lower costs and allow the company to present a more favorable balance sheet to investors.

These particular activities address areas that executives care about – efficiency, cost savings, and risk reduction.

  1. Consider additional advantages of sales tax software
  •  Audit preparation: Sales tax software allows companies to be fully primed for audits and to anticipate likely outcomes without any surprises.
  • Risk reduction: Given more robust scenario-modeling tools and metrics, tax engine software can help identify overlooked areas of risk and provide other forms of strategic intelligence.
  • Decision-making: Sales tax software can help executives and other departments analyze and reveal the hidden tax implications of many important decisions.
  • Systems simplification: Purchasing and/or sales systems can be streamlined and configured so that a company’s ERP automatically delivers the correct data to the tax department.
  • Sales and use tax data: In negotiations with state and local jurisdictions over policy matters, companies can use sales and use tax data to determine their tax profile in various jurisdictions then illustrate how important their company is to the region’s tax base.
  • Digital tax reporting: Governments everywhere are digitizing their tax regimes and requiring greater tax transparency from companies, especially multinationals that engage in a great deal of cross-border trade. Indirect tax software provides all the tools necessary to comply with digital tax regulations around the world.
  • Responsiveness: Automation gives tax departments the means to quickly respond to data requests, reconciliations, and other need-it-now demands.
  • Data insight and opportunities: More powerful data analytics tools and dashboards can help uncover new, previously undetected business opportunities. Download our free whitepaper to learn more about how you can uncover strategic insights and leverage indirect tax data for faster analytics and reporting.

Summary: Communicating sales tax software ROI to the C-suite

By tracking and validating the success of your current project and measuring against the metrics developed in your business case, you add an additional dimension to your story. Facts speak for themselves and testimonials are powerful tools. Build credibility for your overall strategy and planned approach to technology. When it’s time to lobby for Tax’s next purchase, you’ll be able to better support your claims, persuade your stakeholders, and grab their attention more quickly.

Remember these tips:

  • Everyone impacted by a current initiative is a potential advocate for your next project
  • Seek new technology that is aligned to your business and tax strategy
  • Develop sound bites as the implementation and use of the solution begin to share your successes on a moment’s notice
  • Define and measure incremental benefits from implementing a tax engine

Tax professionals must be equipped with the knowledge and skills to build and win their case for investment in technology. Moving from the whiteboard to an actionable plan forward requires a proactive approach to substantiating an ROI in the business case. Using these essentials, gives the project its best chance for success.

Keep reading for more resources on how to calculate ROI in your tax technology business case:

 

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