This document discusses managing and automating the accounts payable process to realize savings, compliance, and growth. It outlines current challenges like managing disparate AP systems and use tax issues. Options presented to take control include real-time automation through ERP integration, batch automation outside the ERP, and evaluated receipts settlements. The key takeaways are that manual AP processes can lead to overpayments and penalties, the tax department can contribute to profits by reviewing AP and use tax, and multiple approaches exist to solve issues.

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Managing & Automating the Accounts
Payable Process to Realize Savings,
Compliance and Growth
Alex Laskowski, Partner, Grant Thornton
Matthew Walsh, Principal – Indirect Tax, Sovos Compliance
Tax Tuesday Webinar April 18, 2018

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Agenda
Use tax issues in the Accounts Payable process
Current State for
Manufacturing
Financial Services
Centralized purchasing
Managing disparate A/P systems
Options to take control and manage the processes
Summary – key takeaways
Q&A

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Use Tax Issues
Consumer’s use tax is due by businesses on storage, use, or consumption of
Tangible personal property
Digital products
Leased or rented items
Movement of goods
Consumer’s use tax may also be due on taxable services (SaaS) sourced to a given
jurisdiction
Businesses must self assess use tax to the jurisdiction when
Retailers or facilitators do not collect sales or use tax on taxable transactions
No nexus, mistake or error, direct pay certificate
Businesses may be required self asses use tax when an intended usage of a product
changes
Withdrawals from inventory
Consumer’s use tax rate vary from sales tax rates
Example: Missouri, Alabama, Arizona, Colorado, Illinois

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Use Tax Issues
The burden of consumer’s use tax is on businesses within the US
Companies are responsible for tracking, accruing, reporting and demonstrating the
appropriate use tax has been paid for all major purchases
Businesses must have the ability to trace and reconcile asset purchases and the
corresponding tax paid from their General Ledger, and provide evidence of payment to an
auditor
Tax compliance is only complete when you can prove that you did the right thing!
Business must provide demonstrable proof that an item is being used outside the auditing
jurisdiction to successfully exclude the review of a particular good or service from an audit
Challenging when a digital product or service
Challenging when you acquire assets

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Common Use Tax Complexities
The Cost of Getting it Wrong
Most of the time we associate consumer’s use tax liability with the audit risk
and associated penalty and interest that accompany underpayment
These risks are undoubtedly serious!
Statutorily imposed penalty (cannot Appeal)
Organizations should also be thinking about what happens when vendors
over-charge sales tax
Overpayment is simply throwing money out the door!
Do purchasers have a process in place to validate the tax charged on invoices?

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Current State Challenges

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A/P Issues: Manufacturing
Manufacturing is challenging because the rules as to what items are
eligible to be purchased pursuant to special manufacturing rules
(exemptions, special rates, etc.) vary substantially from jurisdiction to
jurisdiction
Type of Item: Raw Material, Machinery and Equipment, Tools, Replacement Parts, Energy, Lubricants, etc.
Part of Manufacturing Process: R&D, Pollution Control, Packaging, Conveyancing
Type of Facility: New, Existing, Expanding
Usage: Exclusively, Substantially, Primarily
Failure to understand the exact boundaries of these rules and how they
impact your purchase can lead to substantial use tax audit risk!

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A/P Issues: Financial Services
Challenges for financial service companies…
• Centralized purchasing
• Allocating software, SaaS, database subscriptions and other electronic purchases based on users or
licensees site locations
• Taxation of advertising and printed materials (Kitting)
• Shipments to centralized location(s) then shipped to branch offices or employees

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A/P Issues: Centralized Purchasing
Centralized purchasing organization
Manages all purchases and payment approvals
Centralized A/P clerks making/assessing tax outcomes
May sit outside the U.S.
High volumes with goals of quickly processing and paying invoices
Generally tax experts not involved in the process

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A/P Issues: Disparate A/P systems
Business using multiple financial systems
Acquisitions using different ERPs.
Purchasing Process, not “automated” using home grown systems
Different divisions built stand alone systems and processes
P-Cards not integrated
Each system has different capabilities;
Each system managed and maintained by different teams;
Rules, rates and decisions not coordinated and produce different tax answers.

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Options to Take Control

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Process automation and control options
Real-time Automation
 A direct integration between ERP/purchasing system and Third Party tax engine for
PO and A/P modules
 Tax is included on purchase orders
 Vendor tax is evaluated and can be short-paid
Advantages/Disadvantages
 Provides immediate tax information for forecasting
 Can withhold tax amounts overcharged by vendor improving cash flow
 Requires multiple integrations if utilizing more than one ERP/Financial engine
 Implementations can be more costly
 Can slow the A/P process

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Real Time Tax Calculation

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Process automation and control options
Batch Automation
 Purchases are evaluated by tax engine at defined intervals (weekly, monthly, other)
outside of the ERP
 Use tax calculations completed by tax engine, utilizing full functionality
 Use tax accrual expenses are loaded back into ERP
Advantages/Disadvantages
 More control of process by the Tax Dept.
 Simplified cost effective and extremely flexible method for evaluating use tax
 Simplified management of files from multiple ERP/financial systems
 Does not interrupt the A/P process
 Can evaluate vendor tax, but invoice has most likely been paid

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Batch Tax Calculation
ERP
Batch
Subsystem
Tax Solution
Tax DB
Summary
Journal Entry
Tax Dept
Compliance
Reports
Reports DB
RepDB
ETL Movement
Use Tax Filings
Review and Post
Use Tax
1. 2.
3.
4.
5.
Quote
Posting

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Process automation and control options
Evaluated Receipts Settlements (ERS)
 Determines tax due and payable to seller
 Assesses vendor nexus settings
 Evaluates products purchased
 Determines taxes to be paid to the vendor and taxes to be accrued and self-
reported
Advantages/Disadvantages
 Assures you are paying the right tax every time
 Has an immediate positive effect on cash flow
 Creation and setting up the process can take a long time
 Managing vendor nexus settings continually
 Not all vendors will be able to be included in the system

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Process automation and control options
Evaluated Receipts Settlement
Robust purchasing system; more
than tax
Eliminates vendor invoicing and
ensures correct tax charged
Pricing determined, tax rules applied
automatically to invoice, vendor only paid for
taxes they are owed. Use tax accrued as
needed
Invoice is then sent to the tax engine real-
time
Purchaser creates the “invoice”
Electronic orders placed directly to vendor
via automated system

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Summary – Key Takeways

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Summary – Key Points
Manual processes often cost a business both in over payments to vendors
and interest/penalty issues during audit
A/P processes and use tax review is an area where the tax dept can
directly contribute to the bottom line
Multiple approaches and options are available to solve the issue, including
a combination of approaches

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Thank you!
For more information about automating your tax
compliance process, please visit
http://www.sovos.com
Alex Laskowski, Partner, Grant Thornton
Matthew Walsh, Principal – Indirect Tax, Sovos Compliance