What is a tax engine?

As a growing company with financial transactions, you face challenges in an uncertain time, especially when it comes to your tax compliance processes. Your goal is to scale up confidently and quickly, stay tax compliant, and improve accuracy on tax calculations for sales and use tax — and so much more. Your greatest fear? Believing you are 100% tax compliant, only to find out you are not even close. That’s when you need a tax engine.

What is a tax engine?

A tax engine is software that fully integrates into your enterprise resource planning (ERP), customer relationship management (CRM), or e-commerce system designed to keep you on top of sales and use tax laws. It also aids with international tax regulations like value-added tax (VAT) and goods and services tax (GST), ensuring you calculate and apply tax to your business transactions correctly.

What are the benefits of a tax engine?

A tax engine offers several significant benefits for businesses, particularly when integrated with other financial systems like ERP. Here are some of the key advantages:

1. Accuracy. Tax engines automate the calculation of taxes, reducing the risk of human error. They ensure the correct tax amounts are applied to transactions, which is crucial for compliance and financial accuracy.
2. Compliance. Tax laws and regulations can be complex and vary widely by jurisdiction. A tax engine stays updated with the latest tax rules, helping businesses comply with local, state, and federal tax requirements.
3. Efficiency. By automating tax calculations, businesses can save time and resources. This ability allows finance and accounting teams to focus on more strategic tasks rather than manual tax calculations and filings.
4. Scalability. As a business grows and expands into new markets, a tax engine can handle the increased complexity and volume of tax calculations. This scalability ensures the business can manage tax obligations efficiently, regardless of its size or the number of jurisdictions it operates in.
5. Real-time processing. Tax engines can perform real-time tax calculations as transactions are processed. This immediate feedback helps in making informed decisions and ensures that tax liabilities are accurately reflected in financial reports.
6. Reporting and analytics. Tax engines can generate detailed reports and analytics on tax liabilities, payments, and refunds. These insights are valuable for financial planning, budgeting, and strategic decision-making.
7. Cost savings. By reducing the need for manual tax calculations and minimizing the risk of errors, a tax engine can lead to cost savings. It can also help avoid penalties and fines associated with non-compliance.
8. Audit readiness. Tax engines can maintain a detailed audit trail of tax calculations and transactions. This documentation makes it easier to prepare for and pass tax audits, as all the necessary documentation and data are readily available.

How does a tax engine work with an ERP?

Tax engines work with enterprise resource planning systems to automate and streamline tax calculations and compliance. Here’s how they typically integrate and function together:

1. Data integration. The tax engine connects with the ERP system to access transactional data, such as sales, purchases, and payroll information. This data is crucial for accurate tax calculations.
2. Rule application. The tax engine applies the relevant tax rules and regulations to the transaction data. These rules can be highly complex and vary by jurisdiction, product type, and other factors. The tax engine ensures that the correct tax rates and exemptions are applied.
3. Compliance management. The tax engine helps ensure the business complies with tax laws and regulations. It can generate reports and documentation required for tax filings and audits.
4. Updates and maintenance. Tax laws and regulations frequently change. We provide regular updates to the tax engine to reflect these changes, ensuring that your business remains compliant with the latest requirements.

Partner with Thomson Reuters for your tax engine needs

Improve accuracy, control audit risk, and increase efficiency — and you get your tax right the first time, every time. Contact us today to learn more about how our sales tax engine, ONESOURCE Indirect Tax Determination, can help take you where you want to go as a growing business.