There isn’t a management team on earth that could have foreseen the financial, health and operational challenges that the global pandemic has ushered in. This crisis is forcing organizations in every industry to quickly pivot and reevaluate how they do business — and how they can operate in a smarter, more resilient and efficient way going forward.
Among the business lines feeling this shift most acutely: tax and finance departments. Prior to COVID-19, tax departments were already dealing with increasing audit activity, complex sales and use tax compliance and in-house staffing constraints. The pandemic only amplified these challenges. Tax and finance staff are now responsible for helping to shift business operations and procedures in order to control costs and make smart and timely investments.
While this undertaking might seem overwhelming, there are solutions. At the most general level, it begins with cloud migration. Moving certain business processes to the cloud ensures that there’s savings on hardware, operating systems and IT management. But just as importantly, cloud migration provides a company with stronger disaster recovery and business continuity management capabilities.
Another way to navigate the more complex business landscape of 2020 and beyond is to outsource administrative functions, including sales and use tax returns. The ability to reduce costs and increase efficiency has long been cited as the driving factor behind outsourcing, but the benefits go far beyond that, says Michael Bernard, chief tax officer for Vertex. “Outsourcing administrative functions also allows a company to focus on core business tax issues rather than spending a significant amount of time filling tax returns."
Talk to any tax and finance professional and they’ll tell you one of the most resource-heavy processes they have to contend with each month is sales and use tax compliance and returns. These days, there is a growing list of triggers that, when not addressed properly, can lead to serious and costly issues around these returns. Not understanding sales and use tax properly is among them. Further, bad data quality, inaccurate tax calculations, and weak or outdated internal processes make a business vulnerable to an audit. State tax rules and regulations are also constantly changing, making it challenging for companies to stay on top of them and remain in compliance.
Adding to the challenge is ever-changing legislation that affects e-commerce businesses, a segment of the retail landscape that has seen tremendous growth during the pandemic. The Supreme Court’s final order in 2018’s South Dakota v. Wayfair added another layer of complexity to the tax picture, making it even more critical for companies to have the proper processes and systems in place in order to meet the new economic nexus standards.
By outsourcing sales and use tax returns, a company can meet these challenges and more. “Outsourcing returns allows a company to meet its governance standards while also having audit-ready returns,” says Bernard. It also simplifies the payment process by enabling a company to make one payment to its service provider, rather than to the multiple jurisdictions which is typical with sales and use tax returns. “The service provider makes all those payments and it’s a huge time saver,” he says.
Bernard speaks from experience. Prior to joining Vertex, he spent 28 years with a global tech company. During that time, he says the tech giant outsourced property tax returns, sales and use tax returns, telecom returns, and business license returns. “Given the size of most tax departments these days, you simply can’t deal with the volume of returns that need to be filled without outsourcing,” he says.
Beyond the business process improvement that accrues from outsourcing, it also provides a competitive advantage when it comes to people. Michael Davis, chief tax strategy officer at Vertex, says “retention and attraction rank enormously high in the better tax departments.” That’s because there isn’t enough tax talent in the field these days. “It’s not because companies don’t want to attract, hire and retain,” he says. “There’s a tax labor shortage. So when you can redirect tax work to be more appreciated, value added and client-focused rather than having your teammates spend the majority of their time head down cranking out returns, you’ll have a much better chance of attracting and retaining necessary talent.”
In fact, a recent Vertex survey of clients that outsource their sales tax compliance shows that their professionals are now spending more time on reverse audits, analytics, and tax research. Outsourcing, they said, frees up more time to focus on strategic work and enables them to reallocate their workload in response to staff constraints. “Outsourcing used to have a negative connotation in the tax and finance world, but that’s changed,” says Bernard. “When it’s done right, it enables a company to save time, money, and resources so that it can focus on more value creation to the business.”