Tax & Accounting Blog

6 Biggest Challenges, and What To Do About Them, When Upgrading Legacy Sales Tax Software

Blog, Indirect Tax, ONESOURCE, ONESOURCE Indirect Tax September 25, 2017

You’ve got a sales tax engine today and you’ve had it for a long time. Maybe you were around when it was first installed, or maybe you weren’t. Your company and systems have changed over the years but not your aging tax engine.

Over time and to stay compliant with tax law, your company has built up a lattice of workarounds, both in tax processes (Excel + reports + manual effort really can solve just about any problem) and maybe in your systems as well (custom code or maybe you train your AR & AP team to enter orders just the right way). Maybe your engine only supports sales in the United States but you know you need to validate supplier charged tax. And/or, maybe you want to improve the accuracy, control, and efficiency of use tax accruals through automation. And maybe you have global VAT/GST transactions that are handled manually, or maybe your organization is burdened by custom code and tax maintenance in your ERP or another business application.

You’ve heard about newer cloud-based tax determination engines and tax return software solutions which promise to: 1) remove the need for all of your workarounds, 2) improve accuracy, 3) support tax globally, 4) utilize the latest technologies and avoid obsolescence, and 5) increase transparency into your sales, use, excise, and value-added tax obligations. You’re ready to look at vendors and maybe you’ve wondered: “How can we make sure things do change for the better?”

I’ve been working for more than 10 years in various roles, from IT to tax solution consulting to product management, all specific to indirect tax automation. In working with many different clients and our professional services team over the years, I’ve seen some common challenges they face when upgrading their legacy transaction tax software.hose organizations that address the challenges head-on are the most successful. Here are six common challenges that you should address head-on as well as suggestions to help mitigate them so that you get the most out of your organization’s investment in a new sales, use, excise, and value-added tax solution.

1. Status quo functionality. When looking to upgrade your sales, use, excise, and value-added tax solution, organizations can easily fall into the trap of looking to just replace existing functionality. While you may currently know what your tax solution can and can’t do, there can be significant value in taking a step back and looking at what you would like to do.

How to mitigate this challenge? Get a cross-functional team together (tax, business, and IT) and ask them in an ideal world what tax-related challenges do they want solved. Be sure to provide the premise that the goal is to implement a new and better solution than what you have today. Dream big. Capture these requests and push your tax software vendors to explain how they can address them. Also, be sure to include time at the beginning of your project to do a tax policy requirements review.

2. Late to the party. Often a sales, use, excise, and value-added tax solution upgrade is planned as a result of an existing IT project, like an ERP upgrade or new ecommerce platform. Because your organization has a legacy tax solution today, some may think that it is compatible with the upgraded ERP or new business applications when it in reality isn’t. Or they think that it is easy to upgrade your legacy tax solution to the latest version.

This often results in tax/finance either not even being notified of a potential change or brought in late to a project and they have little time to upgrade. This creates additional stress on your organization and limits your opportunity to take advantage of new features your new tax solution can provide.

How to mitigate this challenge? Build a relationship with IT and stay abreast of changes to the financial systems your company uses for quoting, billing, purchasing, accounts payables, goods movements, ecommerce, and other processes. Mostly, you’ll want to check in with them to understand if any of these changes will impact tax. This at least opens the door for communicating early any plans to upgrade. It’s important to get a sense of timing and be in a position to influence it.

3. It’s an in-place upgrade so it will be easy. Legacy tax solutions not only use older technology, they also often calculate tax in limited and dated way. To take advantage of the newest functionality and technology, even if you stick with the same vendor, you will be ripping out your old legacy tax solution and replacing it. It’s not going to be an in-place upgrade like when you went from Excel 2007 to Excel 2013.

This is good, in one way: it will give you the “opportunity” to address the status-quo functionality challenge mentioned above.

How to mitigate this challenge? Make sure, well before you buy, that your vendor outlines the time and effort to “upgrade” and what it includes. Does it include taking advantage of new functionality? Does it ease your pain points? Push for a RACI (roles & responsibilities) matrix to understand the impact on your resources. Also, ask if they can migrate existing settings or configurations to streamline the implementation process and ensure you keep what is working well in your current solution.

4. Unanticipated costs. This challenge is somewhat related to challenge number one above, you can pay the same and get the same functionality with maybe a few extra bells and whistles. As hinted at above, you may want to automate more than just U.S. sales transactions. You may very well want to integrate more systems to one sales, use, excise, and value added tax solution. All of this will potentially add to the price initially. How do you justify paying more?

Answer: Capture and articulate the savings over the next three to five years, which will surpass the added cost.

How to mitigate this challenge? It is important to capture a couple of metrics that you can use to help build a business case for expanding the use of a tax solution. Start by capturing the time and effort tax, IT, and finance spends on dealing with tax. For example, how much time and effort does the tax team spend training finance? How much time spent in gathering information from various systems for tax returns or audit requests?

And how much time does tax, finance, and IT spend on monitoring, analyzing, updating, testing, and re-deploying changes to tax rates and rules in all of your systems, for all of your products/services, in all of the countries that you’re doing business in, each and every month?

Imagine all of the value-added work that they could be doing for the company and the business. Putting numbers behind the time spent and resulting cost can help justify more budget to add efficiencies and free up time. Of course no one wants to talk about penalties and interest but capturing those as well as hidden risks (we know X is mostly right but knock on wood the auditors haven’t found it) can be persuasive.

5. It takes a village. Upgrading your legacy tax solution is sometimes viewed as just a tax problem with some help from IT. Expanding the value of tax automation so it does more for finance and IT means you’ll need to incorporate those departments in your upgrade project. When expanding globally, you’ll need to coordinate with the various in-country resources. Involvement can range from providing feedback to redesigning processes to do things better. I’ve seen projects face headwind and maybe not reach their full potential.

How to mitigate this challenge? The first step is recognizing who in your organization should be involved. You might get some pushback so be ready with an elevator pitch to help garner support. You need to be able to articulate reasons why others within the organization should be enthusiastic about an upgrade. You can even use some detail from what you find out in challenge number four above. For example, “We need your involvement in this project to save your department time (read: money) and remove the need to do XYZ.”

6. It’s too much work. Doing an upgrade the right way may seem daunting. Heck, after reading this blog you might be tempted to abort your plans to move from that old tax solution. But you won’t, because you know a comprehensive solution is better than the patches your department is currently using. Don’t be tempted to stay with the status quo. There is work involved but it doesn’t have to be overwhelming.

How to mitigate this challenge? As we’ve already stated, capturing the value and benefit of upgrading can help everyone see that the effort will be worth it. But, it’s also important to realize that the vendor you choose can play an important role in helping with the work.

Make sure you partner with a software vendor that will guide you and your team through the process and provide support all the way until you are live with the software. No matter what, your organization will have work to do to make it successful (e.g., provide good test data) but you should have your chosen vendor explain how they will help you be successful. They should tell you how they will make it easier for you during the implementation to get the right tax the first time. Then, looking at post-implementation support, your partner should be able to answer, 1) will they disappear once the project is complete, 2) do they offer support through a stabilization period making sure your go-live is successful for your first filing, and 3) how will they help make sure that you have less work to do for ongoing maintenance and support?

A sales, use, excise, and value added tax solution upgrade is an opportunity, and should be viewed as such. There will be challenges, and knowing what they are up front can help you meet and overcome those challenges with ease. I’m interested in hearing your experiences and thoughts on my list. Please comment below!