Some tax departments aren’t aware of what information is available to them from internal sources—such as the company’s enterprise resource planning (ERP) and general ledger systems, and from cross-functional areas each with their own systems. But there are hidden gems tucked inside these systems that can help tax teams improve efficiency, increase productivity, and enhance performance. Mining those gems is tough, because tax teams rarely have visibility into the information to determine what is useful to support operations.
Further, many tax teams are using traditional software programs and manual methodologies that are just not robust enough to capture and process useful tax information. Spreadsheets, paper statements and other unstructured data are just not enough to satisfy regulatory demands and executives’ hunger for information that can help them run their businesses more effectively.
The good news is that breakthroughs in technology — including functional-specific software — are here and can document, process, and manage content uniquely to the advantage of tax departments.
While there is not a one-size-fits-all solution for every company, some common best practices can help tax operations make the most of available information.
What Data is the Right Data?
Defining the right data sets to support tax operations is the first step in taking greater advantage of big data. There are many data issues specific to tax departments, but here are some examples of where data management tools can be harnessed to mine for insights that can increase the tax team’s efficiency and effectiveness:
- Sales Data is essential to accurately determine corporate tax at the federal, state and even local level. This is true for income tax as well as sales and use tax purposes. For income taxes, as one begins to analyze sales at the state/locality level of detail, layering in specific rules related to those jurisdictions, like apportionment methodologies and throwback, the volume of data and rules-based approach for manipulating that data can become cumbersome. Considering the monthly requirements around sales and use tax filings, the frequency and short turnaround time for filings introduces its own layers of complexity. Managing this data will allow for better analysis, scenario building and tax planning.
- Fixed Asset Data represents all of the plants, property, equipment and other physical assets owned by a company. Knowing the location, type, age and other details surrounding assets is essential to determining tax liability and depreciation. More specifically, with the ever-changing landscape of bonus depreciation regulations in the U.S., transparency into the calculation and the ability to adjust it with the necessary flexibility is critical. With an accurate representation of fixed assets data, tax teams can behave more strategically and understand the impact of these changes more efficiently…therefore providing a swifter response and strategic action that ultimately benefits the business.
- Trial Balance/Financial Data ties into the general ledger that represents all corporate accounts relating to company assets, liabilities, revenue, equity and expenses. In addition to being used for financial reporting purposes, this data obviously has a strong impact on tax provision and compliance as well as planning. From a provision perspective, multiple versions of trial balance data will need to be incorporated into provision calculations throughout the close process in order to produce accurate results. Corporations that have disparate underlying general ledger systems often use a consolidation or ERP system for accounting, but that frequently loses the detail necessary for the tax calculation, leaving tax dependent on the underlying, disparate general ledger systems. Bringing all of that data together, for multiple versions, requires significant data management solutions.
Choosing the Right Technology
The right technology with intuitive front-end user interfaces will reduce a tax department’s reliance on other departments and manual manipulations. As every company’s tax data needs are different, an out-of-the box software solution will likely not serve all tax data management needs. The size of a company, number of entities, growth, locations and a myriad of other factors affect its tax situation. The only way to use just one software tool is to build a tax data warehouse – a solution custom-configured for customer’s use. Often, it takes multiple technologies: a data management tool and an application specifically for process management. As a result, the best solution is likely a hybrid or an off-the-shelf solution that also allows for customization through the solution’s built-in configuration tools.
Ryan Lynch is director of Global Tax Management’s Tax Automation Services Group, helping clients realize technology-related process improvements from tax provision and compliance software, workflow and document management systems, and custom-built tax applications. Contact Ryan at firstname.lastname@example.org.