Operational Excellence in Tax Data Management Oct 13, 2003
A Challenging Leasing Environment Managing through the economic downturn Regulations and accounting changes The need for operational excellence Operational excellence focuses on creating processes and procedures that effectively manage key cost components, including credit decisions, tax accounting and back office processing. 2003 Industry Future Council Report, Equipment Leasing and Finance Foundation
Tax Department Challenges Lowering effective tax rate Managing audits Compliance with laws Documenting & improving internal controls Optimizing IT spending Doing more with less resources
Implications for Lessors and Tax Sarbanes-Oxley Section 404 Intent to restore public confidence Requires documentation of internal controls Implications for complex lease transactions and their financial reporting requirements. Tax processes are likely targets Industry consolidation means intense cost pressure on lessors Operational efficiencies Internal tax department resources remain scarce
Technology a Great Fit with Sales & Personal Property Tax Characteristic Recurring Processes High Volume of Transactions Complex, frequently changing rules Easily measured & tracked metrics Clear ability to minimize risk Apply to Transaction Tax? Applicability to Leasing Generally, states require lessors to collect, report & remit sales and property tax Small & middle ticket leasing transactions tend to be high volume Many leasing companies operate across the U.S. and rates & filing deadlines vary drastically over thousands of jurisdictions Prepare and remit accurate & timely returns/payments to jurisdictions Management of lease portfolios is core competence. Tax compliance is not!
Studies Indicate Tax Departments Past Oriented Activities Future Oriented Activities Compliance Greater Than 2/3 of Time Less Than 1/3 of Time Planning & Opportunity Source: Deloitte & Touche
Better Tax Operations: The Sarbanes-Oxley World Companies are approaching Sarbanes-Oxley in two ways: 1. We have a big documentation effort to go through so we can satisfy Section 404 requirements Vs. 1. Sarbox represents an opportunity for us to improve our controls Good controls save $ Good controls lower risk Good controls will help us have a better operation & be a better company Opportunity
Better Tax Operations: The Sarbanes-Oxley World COSO Standard: Financial Reporting (preparation of reliable, accurate financial reports) Benefits of Automation: Web reporting provides better, more comprehensive documentation Timely, accurate reconciliation of liability accounts On-line image library for audit management Facilitates focus on other non-transaction tax related reporting needs
Operational Excellence in Sales Tax Data Management A Sales Tax Compliance Perspective
Improving Sales Tax Operations for Lessors
Building a Best-in-Class Tax Function Corporate Tax Tax Department Business Business Activity Activity Taxes Taxes (Income, (Income, Franchise, Franchise, Int l Int l Tax) Tax) Pass-Thru Pass-Thru Tax Tax (Sales (Sales tax) tax) Direct P&L Impact Tax Strategy & Minimization Manage to Firm s Risk Profile Technology to Support Data Mining, Analysis, and Compliance In-House Expertise Supplement w/ consultants Little P&L Impact Inherently data and process intensive High volume of recurring transactions Easily measured and tracked metrics Minimize internal resources Use technology to manage data, improve efficiency/accuracy and to create audit trail
9 Process Phases To Consider Matrix Development Calculation Collection Capture Preparation Payment Accounting Document Manage Inputs Outputs Management
How Should Data Management Impact Sales & Use Tax? Verify, Clean, and Analyze Data on the Front End GL Reconciliation Audit Management Jurisdiction Management Return Management Treasury Management Move to the Left Move to the Right
Building A Best-In-Class Sales Tax Function Matrix Mgmt. Calculation & Billing Data Clean-Up Tax Returns Payment & Remittance Audit Trail Notice Mgmt. Account Recons Tax Management Audit Defense High Risk High Value Calculation Risk Complex, Administrative Shift Attention & Investment Technology Data & Workflow Management, Remittance, Reconciliation, Jurisdiction Management High Risk High Value Reports and Images People Matrix Mgt Process Management Audit Mgt
Tax Data Management Model Inputs Process Outputs Lease Acctg ERP Tax Rating Paper Excel Tax Data Warehouse Direct Data Feed Key Entry or or or Compliance System Journal Entries & Recon Detail Returns Reports Images Notice Log State & Local Jurisdictions GL Business Activity Tax
Brief Look At Reports
Benefits of sales tax data management Technology what it means to Tax Managers Flexible Data Management Process Integrity Audit Trail Sales Tax Information Reconciliation With your GL * Works with virtually any format * Seamless, non-invasive transition * Set up one time, then streamlined *Cleaner, safer than in-house *Scalable to your growth, needs *Reliable, consistent, predictable *Image returns, checks, certificates of mail *Web-enabled for easy, convenient access *Eliminates copying, filing, storage *Paperless method for defending audits *24/7 web-accessible information *Build business tax intelligence *Enables trend and variance analysis *Enhances tax and audit functions *Automated Journal Entry Reporting *Reconcile with all data sources *Achieve tight internal accounting controls CONTROL RISK COST
Operational Excellence in Property Tax Management To: Equipment Leasing Association By: Kurt Burr and Karen Soule On: October 13, 2003
2 About Burr Wolff Burr Wolff is a full service provider of state and local tax reduction services, compliance co-sourcing and tax software for the leasing Industry. Our nationwide network of experienced local property tax and sales and use tax professionals is dedicated to understanding the unique needs of our clients. Burr Wolff tailors a full range of services to help leasing companies: Improve cash flow Minimize tax obligations Maximize tax recovery Reduce administrative burden Enhance efficiency
3 Lessor Challenges Automating the property tax life cycle Leased asset data management Asset valuation strategy Tax bill payment Lessee bill-back Improving internal controls Lowering P&I risk Obtaining operational excellence
4 Tax Automation Benefits Asset Optimization + Asset Valuation Strategy = Reduced Taxes for Lessors and Their Clients
5 Property Tax Lifecycle Phase 1 - Asset optimization Jurisdiction profile matrix Ghost assets identification disposed leases
6 Property Tax Lifecycle Phase 2 - Asset valuation strategy Asset re-class/asset scrubbing Fair market value basis vs. assessor trend schedules Value in use vs. value-in-exchange Client specific value modeling 3rd party appraisals where applicable
7 Property Tax Lifecycle Phase 3 - Tax bill payment & lessee bill-back Accurate tax allocation across leased assets Bill-back file creation Reimbursement from lessees before taxes have been paid Documentation to lessees with property tax invoice
8 Improving Internal Controls Best practices Defined procedures Keeping up with changing tax laws Technology advancements
9 Lowering P&I and Improving Cash Flow Automation of tax strategy and asset optimization lower tax liability per asset Gaining most advantageous tax treatment Automation of tax bill process lowers P&I Tracking system for tax bills Processing bulk payments timely Automation of lessee bill-back file to improve cash flow Creating accurate bill back files to recoup taxes Billing lessees before taxes are paid to taxing jurisdictions Invoicing lessees with back up documentation available
10 Achieving Operational Excellence Minimize Risk & Improving Controls Automation of the property tax life cycle Improve Cash Flow & Enhance Efficiency Automation of lessee tax bill-back Technology Software packages IT enhancements
11 Tax Compliance eflow Client A/P, A/R, G/L Fixed Assets Lease Mgmt. Deposit Request Bank Asset Data Check Batch Notification Lessee Billing Detail Accrual Reports A/P, A/R and G/L Files Reconciliation Reports Tax Estimate Data Custom Data and Reports EFT Payments 3 rd Party Vendor Data Preparation System Banking Mgmt. Application Web Interface Application Property Tax Software Tax Bills Assessment Notices Depreciation Schedules Tax Rates Taxing Units Collectors Assessors Tax Returns Paper Checks Deposit Advise