In our most recent Tax Tuesday webinar, Ashley Brody and I took a hard look at the most common filing challenges facing today’s manufacturers. We described the trends that we hear about every day from tax professionals and recommended some best practices for staying on top of rapidly changing filing requirements. In addition to the webinar replay and slide deck, we’d like to share with you the results of attendee responses to questions about their filing challenges and experiences.
For leadership teams in manufacturing organizations, there is one theme that tops the list of priorities: Growth.
Business and Regulatory Change
This market trend is driving manufacturers to expand into new geographies, offer new products and services while simultaneously breaking into new markets. Each of these new business strategies introduces a new, broader landscape of filing requirements for tax managers.
This issue of keeping up with rapidly changing rates, rules and forms was indicated as one of the biggest challenges (Figure 1) for accurate filing. It demonstrates the need for technology and processes that are designed to manage this complexity, while providing the capabilities needed to rapidly adapt to business and regulatory change.
Use Tax Pitfalls
On the accounts payable side of the business, growth and change can also drive challenges with an expansion of purchases from various sources by various means. Many of these transactions are handled manually today.
Understanding the use and jurisdictional implications of these “tricky transactions” can lead to increased risk of error in use-tax filing. Webinar attendees also confirmed that this challenge is top of mind for tax professionals:
Determining and filing Use Tax is a major challenge for Manufacturing Tax and AP teams. In fact, almost half of respondents (47%) said that they are using manual process for determining Use Tax. Some of the pitfalls for incorrectly filing Use Tax include:
- Under reporting Consumer’s Use Tax
- Managing PO’s, P-Cards, R&D purchases
- Promotional use of inventory
- Who is deciding the taxability and where to file? Tax, AP clerk, other?
In many organizations this can be 20% of total transactions. Our webinar provides some additional detail on these types of transactions as well as some short-term and long-term solutions you can implement to improve the efficiency and accuracy of the process.
Exemption Certificate Management
An important topic that we covered in the webinar is the importance of exemption certificate management. These certificates are often a source of inaccurate filings and potential audit risk. As we all know, exemption certificates present a number of challenges and are often the first thing an auditor requests. A well-organized, easy to access certificate management system is essential to mitigating that risk.
Our audience gave the following response to the question, “How do you manage your exemption certificates?”
Most manufacturers are still managing exemption certificates internally either with paper copies or PDFs saved on an internal server. While this may work for some organizations, those that are expanding into new products, geographies and sales channels (like direct to consumer e-commerce) may find this type of process inefficient and fraught with risk.
Common challenges we hear about include:
- Digital copies are not easy to search or retrieve when needed
- Each group or division handling certificates has their own different processes, storage and retrieval methods
- No good way to track missing, invalid or expired documents
- Taxability calculations are not connected to the presence of a certificate
- Too much time is required to track them down to satisfy auditor requests
Certificates are an easy target for auditors and due to lack of comprehensive certificate management, it provides a source for DORs to readily fill revenue gaps.
The Human Factor
Lastly, we covered some of the ways you can stay ahead of audit risk, and some of the common challenges of contending with people and processes that interfere with a streamlined compliance process. Some example we discussed included:
- Lack of documented controls,
- Subjective opinions on taxability of an item from various groups,
- Inconsistent training and updates.
There are many places where the various systems can break down and cause filing errors if you don’t have the right processes and tools. We provided a few thoughts on how your team can operate with discipline to ensure you have the best chance of an accurate outcome with all of your regulatory sales and use tax filings.
We covered this and a lot more. To learn more about the determination, reconciliation and reporting, we hope you’ll watch the entire webinar.
Here at Sovos, we hear from our customers every day about the constant need to stay current with regulations in so many jurisdictions. We’d love to hear about your tax filing challenges, and how we can help – please contact us.
Contact the Enterprise Sales Tax team at Sovos.
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