Simplify Audits, Scale Confidently: 4 Reasons to Automate Your Company’s Tax Processes
By automating processes related to tax provisioning and sales tax reporting, the Office of the CFO can streamline the audit cycle, avoid common financial issues, and enhance a company’s ability to scale.
Tax reporting is crucial for organizations, but compliance can be time-consuming and open to errors due to ever-changing regulations. Plus, companies frequently face other tax-related problems —such as cash tax exposure, increased audit scrutiny, and financial restatements— which can be costly and impact investor confidence. To address these challenges, CFOs and tax professionals are increasingly choosing to automate tax processes, focusing on tax provisioning and sales tax reporting.
Elevate Your Impact
Today’s CFOs and company leaders are balancing growth initiatives with and financial prudence— and driving year-round success across four key themes.
- Tax provisioning is the estimation and recording of a company’s income tax expense in financial statements, which involves calculations of current and deferred taxes based on tax laws. Automating this process using technology— such as Bloomberg BNA, OneSource Tax Provision, or OneStream’s Tax Provision Solution —can help companies and tax professionals boost accuracy, streamline workflows, and minimize compliance risks.
- Sales tax reporting involves the collection, calculation, and remittance of sales taxes to the appropriate tax authorities based on the taxable sales made by the company. In today’s context, companies are often impacted by multiple jurisdictions. Here, corporate accounting and finance teams might consider implementing software solutions like Avalara or Vertex to automate and simplify matters related to sales tax.
These tax automation initiatives can help elevate the impact of accounting and finance teams and allow companies to realize the following benefits:
1. Improved reporting and analysis equals more control, increased auditor confidence
Detailed reports of tax-related data provide an enhanced audit trail allowing your finance team to have a comprehensive and up-to-date view of your company’s tax position. This reporting facilitates the analysis of tax data for financial reporting, strategic decision-making, and compliance requirements. It also allows for the retrieval of necessary information during a tax audit, reducing the risk of penalties and fines. Software internal controls result in less time auditors spend auditing details and calculations, which can lead to fewer last-minute recalculations. Additionally, access to accurate tax data and the audit trail assist with identifying potential tax savings opportunities as well as demonstrates a company’s commitment to accuracy and compliance.
Example 1 - Tax provision software streamlines the audit cycle
By using a tax provision software, one company was able to document its controls more effectively by providing a SOC 1 report to its auditor that detailed the internal controls used in the company’s provision calculations. Before automation, the company’s tax team had relied on the use of spreadsheets with manual calculations, leaving the company vulnerable to mistakes that were costly and time-consuming to correct. The software’s reporting capabilities increased auditor confidence in the output of financial data, and saved the Office of the CFO valuable time and resources during the audit cycle.
2. Increased compliance accuracy means sales tax professionals meet deadlines with fewer errors
Tax regulations are constantly changing at the international, federal, state, and local levels. Keeping up with and adopting the latest changes in multiple jurisdictions is challenging and time-consuming. Manual calculations are prone to errors, and seemingly small mistakes can result in costly penalties and fines. Automated systems use sophisticated algorithms and real-time data to perform accurate calculations, minimizing the risk of errors and ensuring compliance with the latest tax laws and regulations.
Example 2 – Software enables simpler sales tax returns
A growing company with a multi-state footprint had a time-consuming process, using a template to determine sales tax rates and manually file sales tax returns in multiple jurisdictions. The company’s internal team of tax professionals did not have the resources to update the template for rate changes and taxability of new revenue streams in the many jurisdictions in addition to filing requirements. Implementing sales tax software allowed the company to automate the taxability of revenue streams and sales tax rates and reduced the company’s tax department obligations. Now, the team can simply approve the returns filed by the software system.
3. Time and cost savings enable small tax departments to do more with less
Automating tax provision and sales tax processes can save your company time and money by processing large volumes of data quickly and efficiently, reducing the need for manual data entry and calculations. As a result, tax departments can operate more effectively with fewer tax and reporting specialists along with less reliance on outside advisors. Equipping small teams to do more via automation is especially important as companies continue to contend with shortages of accounting and tax professionals. Additionally, software and automation tools help reduce costs associated with potential errors, penalties, and fines created by manual mistakes.
Example 3 – In business combinations, values are weaker without automation
An acquired company’s purchase price was materially reduced by historic errors in sales tax procedures. Had the company used sales tax software for its compliance function, hundreds of thousands of dollars would have been saved upon the sale of the company. Sales tax software would have allowed the company to understand where it had collection obligations and which products and services were taxable in those jurisdictions. In its absence, the buyer reduced its purchase price, filed voluntary disclosure agreements, and implemented sales tax software post acquisition to collect and file prospectively.
4. Equipping companies for growth: tax automation can scale and adapt to evolving business needs
As each company grows and evolves, the tax provision and sales tax processes may become more complex. Automated systems can handle large volumes of data and complex calculations, making them suitable for companies of all sizes and industries. Automated tax software is able to accommodate different tax jurisdictions, tax rates, and other tax-related requirements. This flexibility allows accounting teams to adapt to changes in tax laws, regulations, and business operations.
Example 4 – Automation makes tax accounting easier during acquisitions
As one company grew, it acquired targets with foreign Controllers whose provision calculations depended on local ledger details. Through automation, the acquiring company was able to manage the provision calculations centrally by pushing through rate changes and managing local country statutory accounting and tax reporting requirements. Managing the provision centrally through automation allowed for greater collaboration and insight into results of the foreign subsidiaries, while retaining the necessary information for local country tax reporting requirements. The result was a more accurate and streamlined provision reporting process of the controlling company and its subsidiaries. Through automation, the collaborative effort reduced the timeline for integration by approximately 10% and led to additional auditor comfort with the results.
In this related success story, learn how one private-equity-backed organization navigated the audit cycle amid acquisitions and aligned its tax provision to the new business structure.
When it comes to tax provision and sales tax reporting processes, CFOs and corporate tax professionals can greatly elevate their impact through automation. This approach will help tax teams more easily safeguard value throughout the business and transaction lifecycle and become better equipped to navigate ever-changing tax regulations.