Kelly Necessary,
Tax Partner,
FORVIS

Tax departments may spend many hours gathering and analyzing data required for their overall tax compliance. This process requires the collection of typically disparate sources of data and manual spreadsheet computations, causing companies to expend critical company resources while being subject to unnecessary risks due to potential human error and/or penalties for missing statutory compliance deadlines. As a result, tax leaders and their departments work hard to elevate the value they bring to an organization, particularly by making the tax function more efficient in order to win back time and meet statutory compliance deadlines with ease. Technology plays a major role in helping reach this goal.

The Data Challenge

The tax compliance burden and data needed to fulfill the corresponding requirements can often feel overwhelming regardless of the size of an enterprise. In its native form, enterprise financial data often is not tax-ready. In addition, the burden of tax data volume and compliance may significantly increase as enterprises acquire businesses, offer new lines of services or products, expand into new jurisdictions and/or add or reorganize legal entity structures.

This burden can be illustrated in the area of sales and use tax, a monthly compliance requirement imposed by legal entities, often at the local (county) level. Invoice-level data is often needed in order to comply with these requirements. For example, an enterprise with three billing systems would require manipulation of three disparate data sources each month, or 36 times per year. Depending upon the volume of filings and complexity of sales subject to tax, this could be a significant amount of manual data manipulation.

In recent years, the challenge with data management in taxes has increased, particularly given tax reform and the resulting increased workload due to regulation and guidance updates. The onset of the COVID-19 pandemic in 2020, as well as the resulting increase in turnover due to pressure to transition to remote teams, has amplified the need for tax data solutions. Said simply, the need for — and volume of — tax data has increased, while the availability of resources has declined.

Technology Enablers

Technologies available to help tax functions address data challenges have evolved significantly over the years. While tax software is still a popular choice to apply tax logic computations to data and to produce compliance outputs, it often does not solve all tax data pain points. Additionally, at times, enterprises choose not to invest in tax software, given the required investment, instead performing all tax logic in Excel. Tax data challenges can exist in all steps of the cycle, especially in data collection and the manipulation of the sources to prepare quality tax-ready data. This is when technology can be deployed as an enabler to relieve those pain points.

The following are a few common examples of technologies tax departments can use to assist with data automation:

• Cloud computing offers faster innovation and flexible resources in regard to certain computing technologies, including servers, databases, software, business intelligence and networking capabilities. Optimized cloud computing specifically lowers operating costs and helps infrastructure run more efficiently. Enterprises are rapidly evolving onto the cloud, providing tax departments with access to valuable tools and technologies.
• Data warehouses store and analyze petabyte or larger file sizes to develop parallel data processing routines with simplicity, therefore optimizing security, auditing and support. Tax departments are tapping into internal finance data warehouses or utilizing third-party cloud storage to streamline tax data and create a single source of truth for all tax data inputs and outputs.
• Enterprise automation tools can allow companies to automate specific tax computations by using a centralized platform that they can stand up on premises or via cloud computing architecture, with the former gaining more prominence. These solutions are often less costly than traditional tax software. For example, automation platforms for taxable income computations can include automated consumption and storage of trial balance structure(s), automated tax adjustments and/or uploads of manual/hybrid adjustment data, audit-ready tax workpapers and dashboards for ease in review and management reporting.
• Self-service tools that address automation and analytics are providing users with more control when running automated computations or processes. As tax functions continue to add competencies in data analysis, the opportunity to incorporate self-service tools will increase as well.
• Artificial intelligence and machine learning technologies help companies learn and gain insight from their tax data, which can lead to better business intelligence for the purpose of preparing reports and dashboards as well as identifying trends in collected data.
  A notable trend for tax functions is the use of multiple technology enablers, which is a change in mindset from the traditional use of tax software alone. For example, a tax function may use Microsoft PowerApps to efficiently acquire data, Alteryx to transform the data, an enterprise automation tool to perform the tax calculation and an on-premises data warehouse to store and relate the data for analytics.

The availability of agile technologies, at a reasonable cost, has allowed for the use of multiple technologies.

To access these technologies, many tax executives are partnering more closely with their company’s enterprise IT or finance functions to leverage tools that are licensed by the enterprise already. For example, an enterprise may already have a finance data warehouse with related data available for use by tax. In the sales and use tax example above, the finance warehouse may already combine the data from the three disparate billing systems, reducing the instances of tax data manipulation from 36 times per year down to 12. Enterprise IT may also be evaluating self-service tools, and the tax function could serve as a pilot for the organization. For example, Alteryx could be a self-service tool under evaluation by the enterprise, and tax pilots could show the power of the tool and support the return on investment.
When using multiple technologies, it is important to understand the functionality of each tool and to deploy them appropriately across the tax data cycle. As it especially relates to self-service tools, each technology typically will provide relief to an isolated set of pain points. Some tools are focused on transforming data, similar to the functionality of Microsoft Excel, and some are aimed at visualizing data, e.g., Power BI and Tableau.

Benefits of Technology and Innovation

One of the more significant benefits to utilizing technology enablers for tax innovation and efficiency is a reduction in time spent on manual reporting, which provides increased time for strategic tax analysis. This benefit only multiplies for tax compliance manipulations required quarterly or monthly. For example, more time could allow a team to address and secure untapped planning opportunities without incurring additional consulting fees or increased headcount.

The opportunity to streamline and automate tax department activities can also eliminate duplicative and repetitive process steps and reduce reporting risk due to human errors. Data becomes more accessible to source multiple tax workflows, and the resulting analytics can be used to identify and fuel future tax savings. Tax teams are utilizing technology to quickly turn data into information, ultimately helping reduce cash taxes and/or the risk of financial statement impact on audit.

Finally, many tax teams have considered technology and innovation as a way to reduce consulting fees by bringing data manipulations in-house without a significant increase in internal resource needs.

This article is for general information purposes only and is not to be considered as legal advice. This information was written by qualified, experienced FORVIS professionals, but applying this information to your particular situation requires careful consideration of your specific facts and circumstances. Consult a professional or legal counsel before acting on any matter covered in this update.

Kelly Necessary is a tax partner at FORVIS. Necessary helps companies address inefficiencies within the tax function by offering operational assessment services and data management and automation solutions. She has worked in tax since 1994, providing consulting services while in public accounting and as a tax leader in a Fortune 200 company.