As tax laws continue to evolve, and compliance activities become more complex, it only makes sense to simplify this process through an efficient tax automation system.
Filing taxes is often a cumbersome activity riddled with effort and risk. Tax resources frequently find themselves spending countless hours during the first two weeks of every month pulling together the information required by tax jurisdictions. Even after this investment of time, waste management companies frequently file incorrect tax returns and are at risk for considerable fines and penalties. Key stakeholders are often left asking, “Isn’t there a better way?” Unfortunately, many companies find that they don’t have the time to explore options while keeping up with their current compliance activities. What steps can waste management firms take to improve their overall compliance activities while leveraging technology, increasing efficiency and reducing risk?
Enabling World-Class Compliance
The tax compliance process is best viewed as three distinct activities: data collection, data evaluation, and filing activities. A well-orchestrated process is clearly defined and organizational risks are minimized. When poorly executed, the resource costs and audit risks increase dramatically. Implementing process and business controls within each activity will improve organizational efficiency and mitigate risk.
An important, yet incredibly challenging, aspect of creating an efficient tax compliance process involves the quality and availability of data. The challenge is typically due to limitations in the back-office application where transactional records are stored. Visibility into this data is often limited, and in some cases, access to the data is restricted.
The first step in achieving compliance excellence is to define a data collection strategy. Key stakeholders should participate in the evaluation process to determine the best plan and to provide the tax department with necessary information for compliance activities. Once this plan is in place, it is critical to execute and refine. This is not a one-time activity. As new products, customers or geographies are added to the business, the act of ensuring data readiness for reporting will continue.
In order to track the progress of improving data collection activities effectively, it is important to define owners and establish tracking metrics. The defined metrics should ensure that continual process improvement is the goal. To achieve this, waste management firms should identify short, medium, and long-term process improvement goals. Organizations should not assume that any remediation program for data collection will provide immediate results. Make sure stakeholders understand that this is a journey, and they will need to participate throughout the entire lifecycle. Progress against the established goals should be tracked and communicated to all process stakeholders.
Once the plan for extracting data is established and being executed, evaluating the data for accuracy and relevance becomes the priority. Data can cover many broad areas driving what is reported and where it falls on the return. Defining the steps necessary for data analysis can simplify the process, ensuring that the right information goes in the right location. Manually sorting through the extracted data is a time-consuming and confusing process. Because this process is so difficult, it often depends on expert users to carry out the activities necessary for getting it right. However, there are steps waste management firms can take to improve this phase—at least in part—without adopting a fully automated solution. Tax filing experts should make sure they have visibility into the transactional data. In order to better understand what happened and why, reports should be developed to provide this information. Proper visibility into transactions and reports tying out the data can simplify the evaluation process dramatically.
Defining the reporting requirements should be part of the strategic assessment. Tax departments should take a holistic view and ensure their requirements are met. Create a business case and work with IT to ensure the data necessary is provided. Tax departments should ensure that the reports are designed to support current and future business growth scenarios.
When thinking about analyzing data, it is also important to create specific transaction buckets for business-as-usual transactions. This will allow users to validate commonly used data and analyze unusual transactions such as new products, new customers, new geographies, or rare transactions. Reporting tools can help with this, but knowledgeable resources are critical as well. To enable this, knowledge sharing should be a regular exercise within the tax group. Sharing common processes, tax law changes and best practices for data analysis will create a more efficient tax analysis within the organization.
Once the data has been extracted and analyzed and the tools to aid evaluation are in place, it is time to start paper and electronic filing. While this can be accomplished manually, many organizations find that an automated process is more accurate and efficient. The timing of these activities will often create confusion, so a tax calendar or other planning tool should be used. For waste management firms that require filing in multiple jurisdictions, create a plan that avoids last minute scrambling to complete filing activities. Additionally, identifying a workflow process to support tax return creation, approval and submittal with payment prevents breakdowns. Tax resources may go on vacation and their backups must be identified. Timelines for approval should be established per jurisdiction. The check requisition process should be defined and enabled to ensure proper processing of payment can take place prior to tax return submission.
Garbage In, Garbage Out
Given the complexity of calculating fuel-related taxes, getting taxes right is difficult. Most organizations’ tax systems incorporate multiple, coded programs and tax tables in an attempt to arrive at transactional tax results. The act of monitoring and updating rules and rates is often a manual process, relying on organizational participants from tax and IT to reflect updates correctly within the back office application. Given the volatile nature of tax law changes, this has become one of the more challenging tasks for waste management firms to plan. Moving to an automated tax determination solution can solve many issues. Automated tax solutions help ensure that tax laws are updated correctly and on time every month. Organizations that move away from manual tax determination to an automated solution drive accuracy. Significant time-savings in analyzing transactional data will also result as the inputted data is trusted and consistent from the start.
Moving to Automation
Many of the suggestions listed previously are addressed through moving to an automated compliance reporting solution. Business controls, integrated workflow, tax calendar planning, and efficient analysis tools enable waste management firms to streamline their tax filing process. Additionally, the impact for cross-departmental input is minimized as the tax department now has all of the information needed to file taxes on time.
As your organization continues down the path to tax compliance excellence, evaluating an automated solution should be considered the final step. The organizational benefits relating to increased efficiency and decreased risk of costly errors easily justify the investment. As tax laws continue to evolve, and compliance activities become more complex, it only makes sense to simplify this process through an efficient tax automation system.
Scott Clevenger is the Senior Director of Product Strategy with FuelQuest (Houston, TX) and has over 19 years of experience in the tax technology area. Scott maintains an active role in the industry as a guest speaker and lobbyist. He has implemented automated tax solutions in over 30 countries for some of the world’s largest oil and gas companies. He can be reached at (713) 222-5761 or visit www.fuelquest.com.