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The Key to a Successful Tax Software Implementation

author photo of Joni Johnson-Powe

I have spent most of my career in tax technology assisting large multinational and global companies with implementing tax software solutions. However, as the dynamic of how companies do business in today’s world of the internet and the reach of state and local tax obligations has changed, we now serve clients who are much smaller in terms of company size and revenues. Yet, a company with one hundred employees or less can have just as complex issues to consider as a company with thousands of employees when deciding to implement a software solution. I also find that the expectations in terms of functionality and features are often not very different either, although budgets and resources can be vastly dissimilar.

The decision to automate sales and use tax compliance can be challenging. Once made, success is still not automatic. Below are steps that I recommend any size company incorporate into the plan to implement or upgrade their sales tax solution.

1. Tax Matrix – One of the most important steps for a company considering automation of their sales and use tax systems is defining or updating the taxability of their products and/or services. Too often companies assume they can rely on taxability determined by their third party software. In reality, taxation is a gray area that requires a company to apply their own analysis of a tax authority’s rules and regulations based upon knowledge of the company’s products, services and business practices. Moreover, each company is unique and every tax rule can be interpreted differently.

2. Requirements –For some client projects, our tax business requirements have been over 100 pages of detailed definitions and functionality requirements. Not all companies need a 100-page or even 20-page document, but defining high level statements of the end result desired by the company stakeholders from a tax perspective is essential. This step allows a company to assess the features and functionality it needs to meet its tax compliance and reporting responsibilities. When considering your tax requirements and software selection, knowing your tax requirements can help you avoid purchasing software that is not the right fit for your business; which can be very costly if discovered too far along in a project.

3. Gap Analysis – There is no perfect tax software solution that ensures that 100% of your tax needs are met 100% of the time. It may also be that your accounting or ERP system can’t provide all the information that your tax software needs to make an accurate tax determination. Thus, a Gap Analysis is an important part of your tax project. In this stage, a company identifies where a system or process gap exists for a particular tax requirement. The Gap Analysis is critical because it identifies and documents those areas in the tax system where tax calculation or reporting inaccuracies may exist. This analysis allows a company to plan and design a work-around or future enhancements to fill identified gaps. It also helps to identify potential tax exposures early on in the project.

4. Test Planning – You should never assume that you can just ‘turn-on’ your tax software and it will work. Today, there are a number of tax solutions that are so-called “plug-n-play”, so there is significantly less effort involved with developing a connection between your accounting or ERP system and the tax software. Nonetheless, adequate testing planning for validation of tax system calculations, reporting and processes is crucial. A company should develop detailed tax test cases and expect results that address not only tax calculations, but also end-to-end validation of tax processes. Proper test planning and execution is essential to avoid delays and unexpected surprises with post-go live issues.

So if you are planning a new tax system implementation (or upgrade) - don’t forget to consider the points above. Investing a bit of time into planning can help you to avoid costly mistakes.

Your comments and/or questions are welcome - and appreciated.

Joni Johnson-Powe is the Founder and Principal of Taxnologi Solutions, LLC (“Taxnologi”). She has over 17 years of tax, accounting and consulting experience providing clients with tax compliance and consulting services including income, sales and use, VAT, property and unclaimed property tax services. And if you are considering tax technology, Joni has a specialized skill set in the tax automation arena including set-up, integration and configuration of software packages such as Vertex, OneSource, Avalara, Taxware, eProperty, and UPExchange.

Questions, Comments and/or Consultation Requests may be submitted directly to Joni - using the ORANGE "Request a Consultation" link on her Taxnologi Solutions FIRM PROFILE page.

Other recent “Sales Tax Automation & Software” posts by Joni Johnson-Powe, JD, CPA:

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