EDI and the tax department.

• Author: Crangle, Jan
• Position: Electronic data interchange

Introduction

This quarter's column is written by Jan Crangle, Manager, Office of Appeals, South Carolina Department of Revenue. Long-time members of the Tax Division will recall the red buttons with the one word message, "Simplify," that were passed around during Tax Division meetings. Ms. Crangle's article is a clear statement that, while the tax law may be complicated, the process of doing business is becoming equally complicated. Tax Division members and accountants of all types must become comfortable with the world of digital data, computers, electronic communication and networks. In a broad sense, electronic filing of tax returns is the first exposure any tax practitioner has to electronic data interchange (EDI). This introduction to EDI in the middle of tax preparation season is a necessary wake-up call. Practitioners must keep up with computer technology, or they will look up from their tax books to see clients going to those who are more technologically adept.

Electronic Data Interchange

EDI has been identified by the AICPA Technology Division as one of the technologies that will have the greatest impact on the accounting profession and business. While many in the profession have considered EDI to be limited to the biggest companies with the most sophisticated data processing departments, it is becoming clear that the technology is rapidly filtering down, and (unfortunately) the tax department is sometimes the last to be informed of its company's entrance into the EDI arena.

Reduced to its most elemental components, EDI is computer-to-computer exchange of business information in a standard digitized format via modem. EDI allows trading partners to eliminate the costly and time-consuming process of generating and mailing paper documents that are then retyped and entered into the receiver's computer. Not only does modem transfer avoid mail delays, but by eliminating the need to re-key, errors are also reduced. (It has been estimated that from 75% to 80% of the information printed from a vendor's computer is re-keyed in the purchaser's computer.)

X12, a designation of the American National Standards Institute (ANSI), is the electronic standard that allows EDI to work. In X12, ANSI has created "transaction sets" of common business documents (such as purchase orders, invoices, ship notices, etc.). Through X12 transaction sets, computers that would otherwise be incompatible can now communicate.

Typically, in the present environment...