Tax Technology to Procurement: Let’s Get Together

Tax technologies and procurement systems would make a great couple. But they’ve never really spent much, if any, quality time together – and that needs to change.

Companies put a lot of time and effort into understanding the tax implications of their sales environments as sellers and ensuring tax accuracy, in part because they want to create as little transactional friction as possible for their customers. But they don’t always put the same effort into their activities as buyers.

Procurement systems range from sophisticated enterprise resource planning (ERP) platforms to home-grown systems, and they generally include varying levels of built-in or custom tax functionality. However, given that factors like inventory control and speed of order fulfillment are crucial procurement priorities, tax calculations may take a back seat. Tax rules may not be frequently updated, yet the systems’ outputs are treated as “good enough,” even though they might fail to identify incorrect tax calculations by the vendor. When tax is improperly calculated on purchases, the tax department is left scrambling to fix it by researching the correct tax – or dealing with use tax audits.

The best way to tackle these challenges is through a third-party tax engine. By integrating a tax platform with procurement systems, companies can:

• Enable tax to control the tax calculation within the procure-to-pay process;
• Ensure proper rating of transactions and produce exception reports when transactions are improperly rated;
• Eliminate manual tax updates to the ERP or procurement system; and
• Reduce costs and mitigate the risk of audits.

In an article for Tax Executive, I take a more detailed look at the reasons why tax technology is the perfect partner for procurement systems – and I will cover some of those advantages in a follow-up post.