The client’s pain point
Our client performs a massive volume of procurement transactions and has multi-state operations. It is also in an exemption-rich industry, allocates purchases to multiple jurisdictions, has a poor audit history and regularly conducts reverse audits. These transactions expose the client to the risk of either underpaying sales or use tax and incurring interest and penalties, or overpaying. These penalties lock in extensive funds (which can range from hundreds of thousands to millions of dollars per year), require a sales and use tax historical review, and a filing for refunds.
Because most clients’ procurement and accounts payable professionals are not tax professionals, they often code invoices without thinking about tax implications. In addition, most clients also have rigid integrated tax systems, where most transactions are treated in the same way. Our client had already identified this problem and addressed it by going through a Vertex integration for sales and use tax on the purchase side. Yet, the tax department found out that 15%-25% of their transactions were still receiving incorrect taxability. This was due to various factors, such as general ledger (GL) account miscoding, a lack of integrated solutions that failed to provide visibility into the process, as well as vendor input issues. For example, vendors tend to overcharge to protect themselves, and many don’t have filing obligations in every state in which purchases are made. As a result of these various circumstances, the client was spending hundreds of manual hours a year reversing journal entries and adjusting returns, even with the latest integrated real-time sales and use tax solution that they had purchased.
How we helped
Our client needed accurate tax visibility at the point of the transaction instead of manually reviewing every transaction before submitting a sales tax return in the subsequent month, or having to wait three or four years (on average) to perform a sales and use tax review for every single month of transactions. We were able to offer this service through our use tax accrual data analytics platform, which complemented the client’s Vertex system. The client was able to achieve over 95% accuracy on taxability determinations and efficiency to eliminate manual processes. He also gained visibility into the process each month before returns were filed.
Our use tax accrual data analytics platform aggregates data from different systems that the client can use for tax purposes. The client had created its own data tax warehouse, which streamlined the availability of the data that drives taxability. Our tax professionals customized the tool according to the parameters that the client needed, managing exceptions and creating rules based on up to 50 different data points for the tool, to adapt taxability and review vendor transactions through machine learning. We established a monthly, subscription-based, managed co-sourcing type of arrangement that meets the client’s needs.
Results and return on investment
We have reviewed millions of purchase transactions that were high-volume, low-dollar transactions that the client could not have prioritized otherwise. This created an immediate return on investment, creating efficiency, accuracy and visibility for reporting. Our data analytics platform yields results in only a few days from when the month-close data is available, which gives the team a 10-day window before the reporting deadline. As a result, the client’s compliance is more accurate, the probability of underpaying tax has decreased to mitigate risk, and the manual review time is eliminated. The client also benefits from cash overpayment, as well as from the risk mitigation of over $500,000 per month, which is a substantial ROI to the company.
In time, we will be able to easily accommodate the client’s need for the scalability of the tool, offering the convenience of bringing on additional entities through their current acquisitive nature. To extend the value of our services, we are currently also processing historical data to mine for refunds, which will likely be significant.
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Tax Analytics Services Leader
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