IPT 2013 Sales & Use Tax Symposium Monterey, CA. Automating Use Tax Accruals Without Interfering With Accounts Payable

Transcription

1 IPT 2013 Sales & Use Tax Symposium Monterey, CA Automating Use Tax Accruals Without Interfering With Accounts Payable

2 Presenters 2 Richard Hofrichter, CPA, CMI, Partner Indirect Tax Grant Thornton LLP rich.hofrichter@us.gt.com Office (704) South College Street, Suite 2500 Charlotte, NC Jason Abney, Tax Technology Manager AutoZone, Inc. jason.abney@autozone.com Office (901) 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 3

4 Agenda The decision to automate Different approaches to automation Batch solution overview, options, and details 4

5 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

6 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

7 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

8 8 Questions?

9 Agenda The decision to automate Different approaches to automation Batch solution overview, options, and details 9

10 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

11 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

12 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

13 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

14 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

15 Real-Time Use Tax Automation Architecture ERP System Purchase Order Entry Purchase Goods Receipt Accounts Payable Voucher General Ledger System Tax Management System Tax Calculation Package (i.e. Sabrix, Vertex, etc.) 15 Tax Reporting Utility Compliance Program (i.e. Q-Returns) Transaction Reporting Utility

16 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

17 Batch Use Tax Automation Architecture ERP System Purchase Order Entry Purchase Goods Receipt Accounts Payable Voucher General Ledger System Tax Management System Tax Calculation Package (i.e. Sabrix, Vertex, etc.) 17 Tax Reporting Utility Compliance Program (i.e. Q-Returns) Transaction Reporting Utility

18 18 Questions?

19 Agenda The decision to automate Different approaches to automation Batch solution overview, options, and details 19

20 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

21 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

22 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

23 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

24 Limitations of the Batch Approach continued 24 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

25 Batch Versus Traditional Real- Time Integration Requirement Prompting A/P clerks to short-pay tax charged by vendors Evaluating sales taxes charged by vendors for refund opportunities Real- Time Yes No* Batch No Yes Including expected taxes on Purchase Orders Yes Yes* Reviewing taxability decisions before tax accruals are made automatically No Yes 25 Include sales or use tax amounts in variance pricing for Purchase Orders and Inventory Yes No*

26 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 26 Sales tax batch processing VDA/Mitigation Reverse audits Vendor tax analysis

27 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

28 Data Extraction and Process Flow ERP System Purchase Order Entry Purchase Goods Receipt Accounts Payable Voucher General Ledger System Tax Management System Tax Calculation Package (i.e. Sabrix, Vertex, etc.) 28 Tax Reporting Utility Compliance Program (i.e. OneSource) Transaction Reporting Utility

29 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

30 30 TMS Home Page

31 31 TMS Data File Upload

32 32 TMS Workflow Management

33 33 TMS Transaction Review

34 34 TMS Tax Decision Review

35 35 TMS Filtering Transactions

36 36 TMS Changing Taxability

37 37 TMS Vendor Tax Review

38 38 TMS Data File Setup

39 TMS Data Transformation Rules Home Back My Account Feedback Vertex Logout 39

40 TMS Mapping Table Example City Overrides Home Back My Account Feedback Vertex Logout 40

41 TMS Journal Entry Output Home Back My Account Feedback Vertex Logout 41

42 TMS Mapping Table Example City Overrides Home Back My Account Feedback Vertex Logout 42

43 TMS Project Example Conclusion 43 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

44 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

45 45 GT Client Server Batch Solution

46 46 Expense Use Tax Automation

47 47 Expense Use Tax Automation

48 48 Expense Use Tax Automation

49 49 Inventory Transfer Use Tax Automation

50 50 Inventory Transfer Use Tax Automation

51 Inventory Transfer Use Tax Automation 51

52 52 P-Card Use Tax Automation

53 53 P-Card Use Tax Automation

54 54 P-Card Use Tax Automation

55 55 Questions?