Leveraging existing ERP systems to automate use tax compliance.

• Author: Ault, William
• Position: Enterprise reporting package

Today's corporate tax departments are questioning whether they really need expensive bolt-on software for use tax compliance. The software is not only expensive to license, but it can also take considerable time to install. Moreover, the installation fees can easily be 10 times as expensive as the software license fees. As an alternative, tax departments increasingly are able to use their existing enterprise reporting package (ERP) accounting systems to automate use tax compliance through batch processing.

The batch process alternative can solve many of the problems that arise when accounts payable (AP) departments manually determine use taxes owed. A process that relies on AP staff manually analyzing whether each purchase is taxable is overly time-consuming and often inaccurate because they are not trained on use tax matters and are not up to date on tax law changes. A manual process can result in surprise use tax assessments. Manual processes also can fail to catch purchases of taxable goods and services from out-of-state vendors that do not collect the state tax. Use taxes can also be overpaid on items that could qualify for resale, manufacturing, or a variety of other exemptions.

Corporate tax departments can build out functionality within the AP system to set up use tax batch processing. With a little help from AP and the IT department, they can avoid the considerable license and installation fees associated with bolt-on software packages.

The following steps are normally taken to build a batch process to generate a monthly report of use taxes due to various states:

* Enhance AP data entry;

* Identify accounts to be queried on a use tax matrix;

* Create subaccounts where needed;

* Obtain a use tax rate table; and

* Build a query between the AP data, the use tax matrix, and the tax rate table.

Enhanced Accounts Payable Data Entry

A key to enabling batch processing of use taxes is to modify the AP process so that AP personnel separately enter the sales or use tax paid to vendors as part of the invoice processing system on accounts that typically are associated with use tax liabilities. Most AP invoice processing systems permit separate entries of use tax charged by vendors and paid to vendors. Monthly paid invoice reports can then be generated to identify taxable purchases where no use tax is paid.

The AP invoice processing procedures should also include entry of ship-to data. A monthly paid invoice report including this data element is...