Aligning Tax and Procurement to Streamline Business Processes

MS. SCHWABENBAUER:  Hi.  I'm Kristin Schwabenbauer.  Welcome to text today, a Vertex podcast series.  
On today's episode, we'll be exploring aligning your business and indirect tax for a smooth procurement journey with Mike Guelker.  
Mike is a managing director at Ernst and Young.  He has 25 years of experience in direct and indirect tax automation and has consulted with clients in a variety of industries.  
Previously, Mike was the director of tax at Vertex and a principal in the tech technology practice at PricewaterhouseCoopers. 
Mike, thanks for joining us today. 
MR. GUELKER:  Okay.  Kristin, it's good to be here.  Thank you for having me.  
MS. SCHWABENBAUER:  Great.  So let's dive into it.  I'm excited because you have so much, you know, experience and everything with working with clients in many different phases, the many different phases of these of tax automation in general, as well as, you know, indirect tax in procurement.  
So talk to me about it.  I'd like our audience to understand how do you work with clients to help them create, you know, a business case for this type of project?  
MR. GUELKER:  Yeah.  Thanks, Kristin.  
I think it is important to when we are working with our clients to develop a business case.  I run into a lot of clients that have, you know, issues on the procurement side.  Vendors not charging the right tax or they're not accruing the right tax on the purchasing side.  And we seed a lot of clients that are probably going through, like, a look back review and having to go back retrospectively to get refunds, and really that's a long cycle because you have to, you know, calculate the refunds.  You've got to petition the state to get that money back if you overpaid on your use taxes.  It's a really cumbersome process to go through.  
So what we see is really working with our clients to develop that business case upfront.  Helping them to identify, you know, what overpayments they have had, if they have done look back reviews in the past, using that as a good business case that, you know, hey, we're letting money go out the door here.  We're overpaying our taxes.  Time value of money, you know, and then also maybe some interest and penalties, and trying to get that money back from the state is very cumbersome.  
So we see that as a good    I guess, a good foundation to building the business case that, you know, hey, money is going out the door.  We can start to recoup that money if we build the business case.  To get involved in the procurement project where we can, you know, integrate, you know, Vertex in with our procurement system, so we can help validate the vendor charge tax.  We can start accruing the tax correctly on our purchases if the vendor is not charging us tax.  To really, you know, hit it upfront without having to go back retrospectively and spending a lot of time and money, you know, try to get that money back from the state, if they're doing look back reviews and the money has gone out the door already.  
So I think what we see is that, you know, the best practice is, is trying to build that business case up front and, you know, as we go into these procurement projects, you know, to hook up the Vertex systems into the procurement accounts payable systems.  
MS. SCHWABENBAUER:  Okay.  Yeah.  That    I mean, that really resonates.  And I think, you know, we have a lot of guests on the podcast series that have been bringing that up.  
I haven't quite heard of the look back reviews and I think that's    that should be where you start.  But I mean, I would imagine that, you know, you're looking at    you can look from a tax standpoint by implementing tax with a procurement system, you're looking at, you know, specific tax KPIs and things like that as well as making sure because if you get    if you lose money to the state or you're paying out, it is really hard to get it back.  You definitely don't want to do that.  
So with these projects then, you know, what's your experience?  Do you see tax working in a silo?  Or do you see an alone?  Or do you see tax and procurement more working together?  
MR. GUELKER:  Well, I think, you know, definitely what we see as a best practice is tax and procurement working together.  
Unfortunately, we've had a couple of projects where tax try to go it alone and really were not integrated in with the procurement and, you know, it really wasn't as successful where we see tax and procurement working together.  
You know, procurement is, you know, on the ground, you know, day to day dealing with the vendors.  And also, you know, if they don't have a Vertex system integrated with their procurement or the accounts payable system, what we see is AP clerks, you know, making tax decisions.  And we really want to, you know, take that out of their hands and we want to automate that by integrating Vertex with the accounts payable procurement systems and tax and procurement working together to make that happen.  
So we see the most, you know, the most successful projects where they are, you know, working together, developing that business case.  Tax has the information, but maybe they have done a look back review.  You know, they know what areas where there may be, you know, overpaying or under accruing and having the wrong accruals.  
And then procurement has the day to day operations.  You know, they have the vendor relationships, the ones working with the vendors day to day if issues arise on the tax on invoices.  
So the best practice is, is definitely we see is tax and procurement working together.  Not only to develop the business case but also working throughout the project together if it is decided to integrate Vertex with the AP procurement systems.  You know, then working together through the entire project.  
But, you know, definitely, best practice is, and unfortunately, we have had a couple of horror stories where they didn't work together.  Sort of in their own silos and, you know, that's less than optimal.  
MS. SCHWABENBAUER:  Yeah.  I've heard quite a few stories and it is less than optimal and talk about, you know, or even, you know, tax touches everything.  You know, if you think about especially in the procurement space.  But I think some of the things that really resonate with me is what you said was, you know, that the AP people really and those professionals own the relationships with the vendors and tax plays, you know, a key part behind the scenes in making sure to help, you know, support that process and maybe support things that, you know, moving smoothly.  
But if you're not working together or if tax gets brought in late into a procurement transformation or implementation, whether it be an ERP or maybe, you know, a best of breed like an Ariba or a Coupa or something like that, then it hurts.  
You know, if they're far along down in the implementation, they say, oh, yeah, we got to calculate tax.  Oh, crap.  You know like that's not good.  Because you really need it in the blueprinting stage and early on so you can identify, hey, here's what we're purchasing.  You know, this is what it is for.  This is what it is where it is going to be used or anything like that.  
So yeah, I've definitely seen a    and it's    I would imagine it would be frustrating for you to be on those projects where you were saying, oh, shoot, we didn't get the ball rolling here.  
MR. GUELKER:  Right.  Exactly.  Yep.  
MS. SCHWABENBAUER:  Well, that's good.  
Are there any so I know we spoke about, you know, one good business or best practice I should say is for, you know, tax and procurement to work together.  
Are there any other best practices that you can talk to us about and give us some guidance on based on your experience?  
MR. GUELKER:  Yeah.  You know, Kristin, it talks about, you know, making sure that tax was involved up front early in these projects and I think that's a, you know, a very key best practice that we see, is the earlier tax can be involved upfront and early in these projects, you know, the smoother these projects are going to go.  
Unfortunately, you know, we've run into a couple situations where we've gone through a procurement project.  Tax was brought in really at the tail end because, you know, sometimes it is a, you know, after the fact.  You know, the businesses do not think the tax is important.  Oh, we can wait until the end.  
And, unfortunately, if they wait until the end, you know, there were certain decisions that were made upfront and early without taxes involvement, that we had to go in and unwind a few things.  
So, you know, the earlier that tax can be brought in on these projects, definitely the better.  You know, helping through the design of, you know, not only the tax system, not only setting up Vertex, but the overall procurement or, you know, AP system.  
Working with a client right now that's implementing Vertex and Ariba.  Fortunately, tax was involved upfront and early.  So as we go through the Ariba rollout, you know, they're making decisions on, you know, processed design decisions, how to handle tax exceptions, you know, when to bring tax in, so you know, they're involved upfront and early which is setting a good blueprint for a best practice.  
And then also working on governance, you know.  One thing that we do see is, you know, making sure that tax is involved in the governance process.  What happens when we add procurement categories?  We're going to be purchasing different items or we're going to be onboarding new vendors.  Making sure that tax is involved in that process, so they can map those products and services that they're buying from the vendor, you know, to the Vertex content so when it becomes, you know, time for that purchase to be enabled, you know, we don't have a gap there.  We already have a map to the Vertex categories.  
And I think that's another important best practice is, you know, making sure tax is involved in that, that whole governance process.  You know, when you're adding new categories that you're purchasing or adding new vendors.  It could be you know, have certain exemptions, and just making sure that tax is involved upfront early in those decisions is definitely one of the best practices that we see.  
MS. SCHWABENBAUER:  Oh, that's fabulous and that makes a lot of sense.  I never really thought about it from a governance perspective either and ongoing.
And really, you know, if anything, COVID I think has brought a lot of highlight to, you know, exactly what's going on with supply chains and everything else.  
So, you know, procurement companies or procurement, you know, groups within companies may be looking at new supply chains, new vendors, you know, purchasing masks, cleaning solutions, whatever.  
You know, and that, you know, to get tax involved in those just having them have    make sure that they have the awareness and everything else from an ongoing basis, not just during your implementation, is some pretty good advice.  
MR. GUELKER:  Right.  Right.  And you bring up, you know, the COVID situation.  
We did have a client that, you know, all of a sudden was purchasing, you know, the personal protective equipment.  And then certain states were exempted from sales tax.  So, you know, they were, you know, all of a sudden making all these purchases.  And, you know, we had to make sure that we had, you know, that mapped properly to the Vertex categories.  
You know, Vertex is keeping up with that, you know, those state rules where they're exempt or maybe there's a reduced rate.  But, you know, there was an onslaught of new purchases from these vendors and, you know, taxes had to be involved upfront to make sure it was met properly in Vertex to take advantage of those, you know, special taxing situations.  
MS. SCHWABENBAUER:  Oh, that's great.  Yeah, that makes a lot of sense.  
And I think, you know, it is a way to protect the company.  It is a way to make sure you're saving money.  I know a lot of with the procurement transformations, you hear a lot about KPIs and best practices and efficiencies, especially because of the quantity and the number of invoices that are being analyzed every year, every month.  
So that makes complete sense from my perspective.  
So, and let's switch gears here.  Because from with the globe, you know, we're not just talking about, obviously, the U.S.  We're looking at and it seems like value added tax has really changed over the past couple of years and procurement seems to be pushing that a little bit.  
Can you talk to us about your experience with that?  
MR. GUELKER:  Yeah.  You know, recently we've seen a lot of activity in the international space, you know, when it comes to VAT and then, you know, India specifically, India GST with the recent changes, you know, that India has made to their taxing regime.  
Introducing, you know, the GST concept.  And also now they have just got, you know, some new guidelines around e-invoicing.  
But it is important that you know, tax is involved in that because we see more and more of the companies are going to utilize Vertex rather than maybe, you know, their native ERP systems to help calculate the tax from a VAT perspective.  
And there are a number of nuances.  You know, someone always said, oh, you know, VAT is easy.  But as we go into these implementations, it is not as easy as it seems.  It is getting more complicated again with the, you know, the India GST regime and, you know, and then the VAT changes as it relates to, you know, reverse charges and, you know, exemptions.  
And again, there have been a number of COVID relief measures passed by certain countries, you know, reducing the rate and or making certain exemptions that, luckily, you know, Vertex has kept on top of.  
So, again, it comes down to making sure that tax is involved.  So they're the proper mapping and the products and services to the Vertex content because, you know, you guys are keeping up with all those significant changes that are happening around the world.  
But, you know, we're seeing a lot of activity in companies.  They're utilizing, you know, Vertex to calculate and evaluate their VAT and TSD charges around the world.  And I think that's, you know, an area that will becoming more increasingly complex and more and more companies are going to be utilizing Vertex, rather than the native ERP or procurement functionality to evaluate and, you know, calculate the VAT taxes.  
MS. SCHWABENBAUER:  Yeah.  No, I agree.  And I think it's that's definitely what we're seeing.  I think that's it is evolving.  It used to be a very    I would say SAP kind of mentality, wherein Europe where, it is like, oh, you use native for VAT.  You use, you know, a third party tax for the U.S.  But that's really changing.  And I think all of these things are all coming in to play, you know, and especially, you mentioned the e-invoicing and things like that.  And things are just changing so much more rapidly, and I just see that, you know, expanding and making it more challenging.  
I don't you know, I from my seat, I don't know how companies would without it, would be able to, you know, handle procurement without a tax engine.  I think it would be so hard and so much room for errors and things like that.  
So that's a very interesting perspective that you bring.  I would say from, you know, the business case to the best practices and also what we're seeing from a global space.  
Well, this is great, Mike.  I can't tell you how much I appreciate you taking the time.  
MR. GUELKER:  Thank you, Kristin.  I appreciate the opportunity and it was good talking to you today.  
MS. SCHWABENBAUER:  That will do it for today's show.  I'd like to thank Mike and thanks to our listeners.  
Please make sure to tune in for our next episode when we'll discuss key financial considerations, including tax when deploying a tax solution for your procurement system. 

Episode 1: Why is Indirect Tax in Procure-to-Pay So Critical?

Episode 2: The Differences in Tax in the Procure to Pay Process: U.S. vs. Global

Episode 3: Indirect Tax in Procurement – Landscape, Opportunities, and Challenges

Episode 4: Indirect Tax in the Procurement Landscape: Opportunities and Challenges with Global VAT

Episode 5: Industry Perspective: Integrating a Tax Engine for a Global Motor Manufacturer

Episode 7: Key Considerations When Deploying a Tax Solution for Procurement

Episode 8: Invoicing Explained: Understanding Indirect Tax During the Procurement Process

Episode 9: Keys to a Successful Procurement Platform Implementation

Episode 10: Tax Reporting: Why Internal Audit and The Sarbanes-Oxley Act (SOX) are Essential

Episode 11: Technology Trends in P2P and Tax Automation

Episode 12: Understanding International Accounting: Global Indirect Tax and Procurement

Episode 13: Integrating Vertex with SAP Ariba: An Overview

Episode 14: Consumer Use Tax Audits: Pain Points and Solutions