Global Manufacturer Improves Sales and Use Tax Accuracy and Bolsters Audit Defense

November 20, 2017 Alex Forbes

 

Overview
This multi-billion dollar advanced materials innovator and leading global precision industrial manufacturer has been a Sovos customer since 1996, since doubling in revenue. To further improve their sales and use tax determination and exemption certificate management processes, the company implemented Sovos Global Tax Determination on-premise software in 2012. Five years later, the company has effectively improved customer satisfaction, tax, finance and IT operational efficiency while reducing audit risk and overall costs. As the business continues to evolve, it is looking to improve scale and adaptability by moving to the cloud with Sovos Global Tax Determination and streamlining returns processing with Sovos sales and use tax filing services this calendar year.

It’s just like an insurance policy. If you’re okay with having a six-figure assessment on a future audit, then go ahead and do without it. But if you want to eliminate that or minimize it, why wouldn’t you pay for the software? I think Sovos pays for itself.

- Manager, Tax

 

Goals 

  • Reduce the average cost of sales and use tax audit assessments
  • Improve the customer onboarding and order processing experience to facilitate more accurate, timely sales orders
  • Improve business and IT operational efficiency for sales and use tax determination, exemption certificate management and filing 
  • Establish an audit defense process by automating tax determination on purchases
  • Transition outsourced sales and use tax returns filing service to a more cost-effective provider with a US-based team

Solution

  • Sovos Global Tax Determination for accurate sales and use tax calculations
  • Sovos sales and use tax filing services for expert outsourced sales and use tax filing process
  • Reporting features to proactively obtain expiring exemption certificates from customers 
  • Fast and accurate client support with dedicated and knowledgeable team

Results

  • 4x to 8x reduction in audit assessment costs per year saving 10s of thousands of dollars
  • $20,000 reduction in costs per year utilizing  the Sovos outsourced return management services versus previous provider 
  • Streamlined order management process and operational efficiency by enabling tax team to be self-reliant in setting up customer exemption process without IT support 
  • Self-service audit reporting without need for IT intervention improved from days to minutes
  • Enabled Tax to take control of the accounts payable process to automate use tax calculations to improve accuracy and reduce audit risk
  • Ability to easily handle future M&A activity and business change with expandable solution

Customer Satisfaction

 

Customers across industries turn to this leading global precision industrial manufacturer to help them manufacture with precision and efficiency. Their solutions are everywhere — in factories to households and hospitals. Every day, over 10,000 employees help customers in more than 60 different countries.

 

In speaking with their tax analyst, keeping customers happy was indicated as being of the utmost importance. However, as the company expanded operations throughout North America and Canada, an increase in customers and monthly order volume caused challenges in managing exemptions, leading to order delays and incorrect tax treatment on invoices. These delays and errors caused customer complaints and put an unnecessary strain on the lean tax, finance and IT teams. In 2009 an ERP upgrade project provided the company with an opportunity to reevaluate its current tax systems. It was then that Tax, Finance and IT collaborated to run an ROI analysis of possible alternative sales and use tax solutions.

The team found that the on-premise Sovos Global Tax Determination engine would provide the greatest return on investment and put them in the best position to meet their business needs.

 

Tax, Finance and IT Operational Efficiency  

 

Prior to 2012, one of the biggest challenges the tax team had was not having real-time tax determination and exemption certificate data in their ERP system, SAP. Sending a ticket to IT every time an exemption certificate was needed caused unnecessary delays in processing an order. In addition, prior to Sovos, Tax had to set up individual state certificates for each customer or distributor, and lost valuable time waiting for IT to update the multi-jurisdiction forms for pending orders.

 

Implementing the Sovos solution enabled the Tax team to be self-reliant setting up the customer exemption process without IT support, streamlining the order management process and further improving operational efficiency. The team also developed extract reports to manage missing and expiring exemption certificates more proactively, eliminating costly rework.

 

Accounts Payable

 

Having the Sovos solution has also helped build a streamlined process for validating the tax treatment on purchases, ensuring they are getting the proper exemptions and tax treatment applied from their suppliers. Prior to the Sovos solution, it was common practice for Purchasing to make decisions on the taxability of parts or other items the company was purchasing that were often incorrect, leading to errors in filing and increased audit risk. The technology helped them improve the process of how they were applying purchase codes and material groups which enabled accurate tax treatment on purchases - reducing the manual effort of having to manually look up rates for supplier purchases. According to their tax analyst, “Sovos has standardized and automated the AP process and put control back within the Tax Department, greatly reducing the interest and penalty liabilities on our audits. Having those material groups mapped in Sovos has helped tremendously.”

Ensuring our customers aren’t incorrectly billed  tax  on exempt purchases is extremely important to us. Keeping customers happy and getting paid in a timely manner is a big deal on orders of this magnitude. This is one of the biggest things that the solution has provided. Prior to Sovos, it was a long, manual and error-prone  process that required IT intervention on every exemption certificate. Now we can check an order in real time and ensure it’s accurate saving significant time every month and reducing our audit risk.  - Tax Analyst

Moving to the Cloud for Improved Audit Defense

 

According to a recent Aberdeen sales and use tax study, manufacturers are seeing greater frequency and scrutiny of audits than ever before. In line with this finding, the company’s tax manager stated they have been getting more requests to have the states come in to do audits than in the past. 

 

As a multi-billion dollar manufacturer, a poor sales and use tax audit assessment can mean the difference between paying tens of thousands or hundreds of thousands of dollars in penalties and interest per audit. After implementing the Sovos Solution, the Tax teams were able to make more accurate decisions and eliminate some of the previous audit cycle findings that occurred. 


Now, as the company begins to move its technology stack to the cloud in response to this increased audit frequency and scrutiny, it has decided to move to the Sovos Intelligent Compliance Cloud platform with the Sovos Global Tax Determination solution. Moving to the cloud will help remove the IT backlog issue, improve jurisdictional-level accuracy and remove the need to manage tax rate and rule change updates, which will always be up-to-date with the current version of the software. Additional benefits include a greater ability to scale, reduction in time spent on audits, and improved reporting tools to streamline audit defense.

“Moving to the Sovos cloud-based sales and use tax solution will eliminate costly internal IT activities, ensure we always have the latest updates and substantially reduce our future audit assessments by ensuring greater accuracy in our tax filings.” - Manager, Tax

Returns Filing

 

As a lean tax team in a fast-growing company, they had outsourced to a third-party outside the U.S. for returns filing and support. However, time zone differences, communication gaps and collaboration issues resulted in the team deciding to move this task to Sovos’ sales and use tax filing service, which “has much more knowledge of North American tax rates and regulations and much more responsive.” The company is in the process of moving their sales and use tax returns into the Sovos cloud as well, improving their ability to extract reports each month and self-serve versus relying on a third-party add-on. In addition, the Sovos STS services will streamline the returns process, which ensures filing accuracy and saves the company $20,000 a year in licensing fees alone.

“We were filing in the wrong parish at times and had the state or locality coming back saying they never received our payment. It was quite literally death by a thousand papercuts prior to Sovos.” - Manager, Tax

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