As companies chart their path to recovery in a challenging business environment, finance departments are renewing their focus on reining in costs and positioning investments to improve controls and governance. Tax departments seeking to align with those priorities should consider one high-return move in particular: outsourcing sales and use tax returns.
The benefits are numerous, but for me, five in particular spring to mind. I’ll cover a couple in this post – two things that you can reduce – and the others in an upcoming blog. (Spoiler alert: I will discuss things you can increase in that post, including your tax group’s ability to tackle high-value tasks, the efficacy of controls and governance, and scalability.)
First, here’s what compliance outsourcing decreases
1. Costs
Outsourcing enables you to fund compliance activities under a subscription model, with monthly fees that can be variable, based on the number of returns. When weighing the value of this benefit, it’s important to consider the total cost of in-house compliance. In addition to the staff and software to prepare the returns, it includes the time needed for tax professionals to conduct the following activities:
- Tax data file manipulation;
- Account reconciliation;
- Returns filing (mail, e-file);
- Check request and preparation;
- Registrations;
- Document management, archiving;
- Report generation for audit prep; and
- Managing notices from state and local jurisdictions for audits.
Outsourcing sales tax compliance also lessens the burden on finance professionals by reducing or eliminating finance and accounting tasks such as:
- Check preparation;
- Funds remittance;
- Funds receipt management; and
- Credit management.
In addition, most tax departments often have various projects or deliverables that cannot be completed due to the strict compliance deadlines of the sales and use tax process. By outsourcing, other business objectives can be achieved and will potentially reduce risk.
2. Audit Risk
Outsourcing to an organization whose core competency is compliance reduces your audit risk. The automation tools used by outsourcing providers also will reduce errors in the tax filing process. Some services can analyze data flows and detect anomalies in the data, which can prevent the filing of incorrect returns. Service providers usually stay abreast of the latest filing requirements, dates, and forms, ensuring that your company maintains a timely and proper compliance calendar. Finally, a central source of reporting and archiving provides a streamlined audit prep resource – in other words, filed returns are “audit ready.” These reports are ideal for jurisdictional audits, as most auditors are accustomed to reviewing outsourced compliance documentation. As such, audits could potentially run smoother with these automated reports.
PLEASE REMEMBER THAT THE TAX MATTERS PROVIDES INFORMATION FOR EDUCATIONAL PURPOSES, NOT SPECIFIC TAX OR LEGAL ADVICE. ALWAYS CONSULT A QUALIFIED TAX OR LEGAL ADVISOR BEFORE TAKING ANY ACTION BASED ON THIS INFORMATION. THE VIEWS AND OPINIONS EXPRESSED IN TAX MATTERS ARE THOSE OF THE AUTHORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY, POSITION, OR OPINION OF VERTEX INC.
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