managing and automating the accounts payable process to realize savings, compliance and growth

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Managing & Automating the Accounts Payable Process to Realize Savings,

Compliance and GrowthAlex Laskowski, Partner, Grant Thornton

Matthew Walsh, Principal – Indirect Tax, Sovos Compliance

Tax Tuesday Webinar April 18, 2018

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2 AgendaUse tax issues in the Accounts Payable process Current State for

Manufacturing Financial ServicesCentralized purchasing Managing disparate A/P systems

Options to take control and manage the processes Summary – key takeaways

Q&A

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3 Use Tax IssuesConsumer’s use tax is due by businesses on storage, use, or consumption of

Tangible personal propertyDigital productsLeased or rented itemsMovement of goods

Consumer’s use tax may also be due on taxable services (SaaS) sourced to a given jurisdiction

Businesses must self assess use tax to the jurisdiction whenRetailers or facilitators do not collect sales or use tax on taxable transactionsNo nexus, mistake or error, direct pay certificate

Businesses may be required self asses use tax when an intended usage of a product changesWithdrawals from inventory

Consumer’s use tax rate vary from sales tax ratesExample: Missouri, Alabama, Arizona, Colorado, Illinois

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4 Use Tax IssuesThe burden of consumer’s use tax is on businesses within the US

Companies are responsible for tracking, accruing, reporting and demonstrating the appropriate use tax has been paid for all major purchases

Businesses must have the ability to trace and reconcile asset purchases and the corresponding tax paid from their General Ledger, and provide evidence of payment to an auditor

Tax compliance is only complete when you can prove that you did the right thing!

Business must provide demonstrable proof that an item is being used outside the auditing jurisdiction to successfully exclude the review of a particular good or service from an audit

Challenging when a digital product or serviceChallenging when you acquire assets

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5 Common Use Tax ComplexitiesThe Cost of Getting it Wrong

Most of the time we associate consumer’s use tax liability with the audit risk and associated penalty and interest that accompany underpayment

These risks are undoubtedly serious!

Statutorily imposed penalty (cannot Appeal)

Organizations should also be thinking about what happens when vendors over-charge sales tax

Overpayment is simply throwing money out the door!

Do purchasers have a process in place to validate the tax charged on invoices?


Current State Challenges

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7 A/P Issues: Manufacturing

Manufacturing is challenging because the rules as to what items are eligible to be purchased pursuant to special manufacturing rules (exemptions, special rates, etc.) vary substantially from jurisdiction to jurisdiction

Type of Item: Raw Material, Machinery and Equipment, Tools, Replacement Parts, Energy, Lubricants, etc.

Part of Manufacturing Process: R&D, Pollution Control, Packaging, Conveyancing

Type of Facility: New, Existing, Expanding

Usage: Exclusively, Substantially, Primarily

Failure to understand the exact boundaries of these rules and how they impact your purchase can lead to substantial use tax audit risk!

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8 A/P Issues: Financial Services

Challenges for financial service companies…

• Centralized purchasing

• Allocating software, SaaS, database subscriptions and other electronic purchases based on users or licensees site locations

• Taxation of advertising and printed materials (Kitting)

• Shipments to centralized location(s) then shipped to branch offices or employees

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9 A/P Issues: Centralized Purchasing

Centralized purchasing organizationManages all purchases and payment approvals Centralized A/P clerks making/assessing tax outcomesMay sit outside the U.S.High volumes with goals of quickly processing and paying invoicesGenerally tax experts not involved in the process

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10 A/P Issues: Disparate A/P systemsBusiness using multiple financial systems

Acquisitions using different ERPs.

Purchasing Process, not “automated” using home grown systems

Different divisions built stand alone systems and processes

P-Cards not integrated

Each system has different capabilities;

Each system managed and maintained by different teams;

Rules, rates and decisions not coordinated and produce different tax answers.


Options to Take Control

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12 Process automation and control options

Real-time Automation A direct integration between ERP/purchasing system and Third Party tax engine for

PO and A/P modules Tax is included on purchase orders Vendor tax is evaluated and can be short-paid

Advantages/Disadvantages Provides immediate tax information for forecasting Can withhold tax amounts overcharged by vendor improving cash flow Requires multiple integrations if utilizing more than one ERP/Financial engine Implementations can be more costly Can slow the A/P process

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13 Real Time Tax Calculation

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14 Real Time Calculation

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Batch Automation Purchases are evaluated by tax engine at defined intervals (weekly, monthly, other)

outside of the ERP Use tax calculations completed by tax engine, utilizing full functionality Use tax accrual expenses are loaded back into ERP

Advantages/Disadvantages More control of process by the Tax Dept. Simplified cost effective and extremely flexible method for evaluating use tax Simplified management of files from multiple ERP/financial systems Does not interrupt the A/P process Can evaluate vendor tax, but invoice has most likely been paid

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16

Batch Tax Calculation

ERP

Batch Subsystem

Tax Solution

Tax DB

Summary Journal Entry

Tax Dept

Compliance Reports

Reports DB

RepDB

ETL Movement

Use Tax Filings

Review and Post Use Tax

1. 2.

3.

4.

5.

Quote

Posting

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Evaluated Receipts Settlements (ERS) Determines tax due and payable to seller Assesses vendor nexus settings Evaluates products purchased Determines taxes to be paid to the vendor and taxes to be accrued and self-reported

Advantages/Disadvantages Assures you are paying the right tax every time Has an immediate positive effect on cash flow Creation and setting up the process can take a long time Managing vendor nexus settings continually Not all vendors will be able to be included in the system

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Evaluated Receipts Settlement

Robust purchasing system; more than tax

Eliminates vendor invoicing and ensures correct tax charged

Pricing determined, tax rules applied automatically to invoice, vendor only paid for

taxes they are owed. Use tax accrued as needed

Invoice is then sent to the tax engine real-time

Purchaser creates the “invoice”

Electronic orders placed directly to vendor via automated system


Summary – Key Takeways

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20 Summary – Key Points

Manual processes often cost a business both in over payments to vendors and interest/penalty issues during audit

A/P processes and use tax review is an area where the tax dept can directly contribute to the bottom line

Multiple approaches and options are available to solve the issue, including a combination of approaches


Thank you!For more information about automating your tax

compliance process, please visit http://www.sovos.com

Alex Laskowski, Partner, Grant Thornton

Matthew Walsh, Principal – Indirect Tax, Sovos Compliance