Organizing and staffing of the tax function.

• Author: Arlinghaus, Barry P.

Organization and Staffing of the Tax Function

Managing the tax function in today's complex and changing environment requires more than filing returns and dealing with tax audits. It requires tax management to be an integral part of the company's business team. In order to learn more about tax management's role in today's corporate environment, a survey was conducted that focused on senior management's perception of the tax function, the tax department's involvement in decision-making, information flow, and organization structure.

Two questionnaires were used to conduct the study. One questionnaire was developed for completion by the company's chief executive officer (CEO). The other questionnaire was developed for completion by the person who had primary direct responsibility for the overall tax function. Results of the CEO questionnaire were discussed in an article in the Spring 1989 issue of The Tax Executive (Vol. 41, No. 3, pp. 223-56). This article summarizes the findings for the senior tax person questionnaire regarding staffing and organization of the tax function and the place of the chief tax officer (CTO) in the corporate hierarchy. A third article appearing in the September-October 1989 issue will address tax department communication, information gathering, the use of computers, and the use of outside advisers.

The author wishes to express his appreciation to those who have helped make this study possible. First, Tax Executives Institute (TEI) assisted by making its membership list available and provided partial funding, and members of the Institute's Corporate Tax Management Committee and other TEI members provided valuable insights. Miami University - in particular the Department of Accountancy and the School of Business - provided a significant amount of financial support. Numerous students, in particular Steve Cunningham and Mike Warmouth, assisted in the compilation of the data. Lisa Ehrichs provided invaluable assistance with computer input and the writing of programs that resulted in output for analysis.

Methodology

Information for this study was obtained by means of two questionnaires mailed to the senior tax person at 2,463 TEI member companies. The cover letter requested that the senior tax person forward the CEO questionnaire to the CEO for his or her independent completion and separate return.

In order to gain the insight necessary to develop meaningful questionnaires, interviews were conducted of tax executives at 15 midwestern companies during the Summer of 1987. Drafts of the questionnaires were sent to tax executives at the 15 companies where interviews had been conducted and to members of TEI's Corporate Tax Management Committee. Comments were received from 22 tax executives. The questions dealing with staffing, organization, and the chief tax officer from the senior tax person questionnaire are reprinted in Appendix I to this article.

Questionnaires were numbered in order to facilitate the mailing of second requests and to enable the author to correlate CEO responses with those of the senior tax person for the same company. Confidentiality of responses was strictly observed as promised. The questionnaires were mailed in October 1987. Second requests were mailed in late November and early December. Approximately 30 percent of the responses received from each group were generated by the second requests.

Responses were received from 588 companies. Surprisingly, there were 30 companies for which the CEO responded but not the senior tax person. There were 298 companies for which both the CEO and the senior tax person responded.

Overall, there were 558 returned and completed senior tax person questionnaires for a response rate of 22.7 percent. There were 328 returned and completed CEO questionnaires for a response rate of 13.3 percent. Not all of the respondents answered each question but most responded to nearly all of the questions.

Most of the senior tax persons responding were from smaller companies. Approximately 55 percent of the 558 questionnaires returned by senior tax persons were from companies with assets under $1 billion. Almost 86 percent of the responses were from companies with assets under $5 billion. On the whole, however, responses were received from companies representing a wide range of industries.

Number of Tax Staff

Firms were asked the number of tax staff employed to do tax work at corporate headquarters. For this purpose, "tax staff" was defined as managers, supervisors, and technical specialists. Tax staff did not include clerical employees such as secretaries and data processing personnel. Five hundred and fifty-one firms provided the number of employees by type of tax work and by type of tax.

Table 1 indicates that the 551 firms employed 4,148 persons. The majority were employed in either full-time compliance activities or the combination of compliance, research, and planning activities. Only 18.3 percent of the tax staff worked in research and planning on a full-time basis. Relatively more of the tax staff involved in international taxation (32.6 percent) were employed in full-time research and planning activities. Of the tax staff involved in state, provincial, and local income (franchise) taxation, relatively few (11.2 percent) were employed in full-time research and planning.

Table : TABLE 1 Number of Tax Staff by Type of Tax Work and by Type of Tax N = 551 Type of Tax Work Combined Full-Time Compliance Full-Time Research Research Type of Tax Compliance and Planning and Planning Total Federal Income 819 433 712 1964 State, Provincial 385 87 303 775 and Local

International 75 120 173 368 Payroll 91 13 53 368 Property 161 41 125 327 Sales/Use/Excise 210 40 129 379 Other 81 24 73 178 Totals 1822 758 1568 4148 As expected, the largest percentage of tax staff (47.3 percent) was employed in the federal income tax area. The state, provincial, and local income (franchise) tax area employed 18.7 percent of the tax staff. A significant portion of the tax staff was employed in the property (7.9 percent) and the sales, use, and excise tax (9.1 percent) areas. International taxation employed 8.9 percent of the tax staff.

The mean number of tax staff per respondent by type of tax work and by type of tax is provided in Table 2. Tables A and B in Appendix II provide the mean number of tax staff per firm by industry group. Nine industry groups had tax staffs that were well above the 7.53 mean number of tax staff for all respondents. They are aerospace with 10.6, chemicals with 11.5, computers and office equipment with 14.8, mining and crude oil production with 16.6, motor vehicles and equipment with 11.5, pharmaceuticals with 10.9, equipment leasing and rentals with 10.3, insurance with 10, and investment banking with 12. The mean number of tax staff employed by conglomerates was 9.6.

As anticipated, the mean number of tax staff increased as sales and size of assets increased. Companies with assets under $1 billion averaged only 3.35 persons on their tax staff, whereas those with over $20 billion of assets had a mean number of 29.91 persons. When categorized by sales, the range of mean number of tax staff was from 2.70 for companies with sales under $500 million to 56.50 for companies with sales over $20 billion. Tables C and D in Appendix II...