Monitoring the success of your sales tax outsourcing relationship can be challenging. There’s a tightrope that you must walk between turning over the process solely to your partner and staying too involved. I’ve seen outsourcing engagements go sour in both situations but more often when a business stays too involved in the process after outsourcing.
Sales tax outsourcing relationships often begin with intense scrutiny until a certain level of trust and credibility are established. It’s natural for a company to review the sales tax returns and ask a lot of questions initially. It’s good for them to know what is happening in the engagement and it helps identify various manual adjustments and custom processes that otherwise would not surface. However, at some point, a business needs to step out of the process and monitor the effectiveness.
A good way to monitor the effectiveness is to take note of any notices from jurisdictions. While many of these will be informational in nature – tax rate changes, new forms, etc. – deficiencies will be noted as well. You should be sure you see the deficiency notices and take note as to how the notice is resolved. This is a great check and balance.
Another way to monitor the effectiveness is to balance your partner’s tax reports to your General Ledger. TaxConnex provides a tax reconciliation spreadsheet that ties the tax data to the taxes due on each tax return. The tax due and any held balances should tie out to your General Ledger. (Held balances are often as a result of tax that has been collected but not yet remitted. For example, quarterly returns.)
Periodically, reviewing your engagement with your partner should be part of your monitoring process as well. Depending on the complexity of your business this may be once per-month or once per-quarter. Key discussion points include reviewing any open notices, anticipated changes in your business (mergers, acquisitions, new billing systems, etc.), opportunities for improvement such as changes to a data file that could improve the accuracy of the returns, and any pending sales tax audits.
Allowing your partner to do what you hired them to do and having the appropriate monitoring process in place is all part of walking the performance tightrope – which will help you reach your goal of sales tax outsourcing success.
Dave Wilson says: 