How to automate tax compliance along the procure to pay process to ensure compliance. Various semi-automated and automated real-time and batch options included.

1. Automation to Manage Your AP Tax
Compliance Challenges

2. 2
Agenda
Agenda
Introductions
 Common issues in the AP Process
 Process issues
 Disparate systems
 Data and insight
Taking Control
 Creating a process
 Vendor Review
 Integrating Systems
Automation Options
 Determination
 Analytics/reporting

3. 3
Introductions
Charles Maniace
 Director – Regulatory Analysis
Matthew Walsh
 Principal – Indirect Tax

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Polling Question 1
Will you be applying for the 1 CPE credit after attending this webinar?
A. Yes
B. No

5. Common AP Challenges

6. 6
Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.
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

7. Challenges:
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!

8. Challenges: Retailers
 Store build-out – software systems
 Tracking movement of physical of assets
across jurisdictions
 Promotional items / damaged items
 Give away items and samples
 Displays
 Advertising and fliers

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Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.
Challenges: Purchasing Org
 Centralized vs decentralized
purchasing organization
 Generally tax experts not involved
in the process
 Manages all purchases and
payment approvals
 A/P clerks making/assessing tax
outcomes
 May sit outside the U.S.
 High volumes with goals of quickly
processing and paying invoices

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Polling Question 2
What type of business are you?
A. Manufacturer
B. Retailer
C. Software/High-tech
D. Financial Services
E. Other

11. AP Process Challenges

12. “A successful tax professional
of the future will be highly
proficient in data analysis,
statistics, and technology, as
well as process improvement and
change management.”
PwC – The Tax Professional of the Future
No Process Manual Process
Varying
Processes
Lack of Data
Insight
AP
Challenges

13.  The Risky Approach
 Multiple purchasing avenues
 Multiple groups/people making
purchasing decisions
 No review process or oversight
 Multiple, continuing issues on audit
No Process Manual Process
Varying
Processes
Lack of Data
Insight
AP
Challenges

14.  Taking some control
 Pulling purchase info, using Excel or
something similar to review data
 The review is ad hoc (perhaps some
parameters, e.g. invoice amount, tax
amount or no tax, etc)
 Inconsistent
 Doesn’t provide upstream controls
No Process Manual Process
Varying
Processes
Lack of Data
Insight
AP
Challenges

15.  Recurring – processed through
standard AP flow
• Software subscriptions
• Raw materials
• Recurring services/maintenance
 One Time – non-standard AP flow
• P-Cards
• Office Supplies
• Employee Expense Accounts
 Disparate systems
• Multiple ERPs
• Purchasing systems outside ERP
No Process Manual Process
Varying
Processes
Lack of Data
Insight
AP
Challenges

16.  Multiple systems where data is isolated
 No consistency in available data
 Data lacks sufficient details
 Teams unwilling to “share” data or
information
 No review of available data
 Lack of sufficient tools to analyze and
mine information
No Process Manual Process
Varying
Processes
Lack of Data
Insight
AP
Challenges

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Polling Question 3
Which group in your organization manages your AP tax compliance process?
A. The AP team
B. The Tax department
C. Finance
D. Multiple departments
E. I don’t know

18. Automation Process Control

19. 19
Accounts Payable
Automation
Tax Matrix
Look Up Tool
Invoice
Verification
Automated Tax
Tolerance
Processing
Evaluate Receipts
Settlement (ERS)
Tax Matrix:
 Internal tool that puts tax
information in the hands of the AP
team
 Advantages
• Inserts a process/logic flow
• Removes some of the guess work out
of the AP process
• Ensures the tax dept has influence on
AP decisions
 Concerns/Limitations
• Static tool – must be continually
reviewed and updated to remain useful
• Human intervention and decision is still
required with each invoice

20. 20
Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.
Taking Manual Decisions out of Purchasing Process

21. 21
Accounts Payable
Determination
Tax Matrix
Look Up Tool
Invoice Review
Automated Tax
Tolerance
Processing
Evaluate Receipts
Settlement (ERS)
Invoice Review:
 A process of manually verifying the tax
calculation made on the invoice by your
vendor
 Advantages
• Not a very complicated procedure
• Flexible, allows the you to determine which invoices
to review
• Inserts some review by the tax dept
• Can focus on problem areas or big dollar invoices
 Concerns/Limitations
• Manual process
• Labor intensive
• Doesn’t review all invoices
• Review occurs after invoices paid
• Still leaves room for large differences over many
invoices

22. 22
Accounts Payable
Determination
Tax Matrix
Look Up Tool
Invoice
Verification
Automated Tax
Tolerance
Processing
Evaluate Receipts
Settlement (ERS)
Automated Tolerance Processing:
• Automated process of verifying the tax calculation
made on the invoice by your vendor;
• Utilizes a tax determination engine with current tax
rules and rates
 Advantages
• Real time, batch process, or both
• Flexible, allows you to manage specific
business scenarios
• Allows all invoices to be reviewed
• Tax dept determines acceptable variances
• Robust approach that can help you identify
problem areas; vendor, cost ctr, jurisdictions,
etc
 Concerns/Limitations
• The initial set up is critical
• Real time could slow AP process
• Must still set up a self-assessment process

23. 23
Accounts Payable
Determination
Tax Matrix
Look Up Tool
Invoice
Verification
Automated Tax
Tolerance
Processing
Evaluate Receipts
Settlement (ERS)
Evaluated Receipts Settlement:
• Automated process of determining tax due
and payable to seller;
• Assess vendors nexus profile
• Evaluates invoice determines taxes paid to
seller and use taxes to be accrued
 Advantages
• Assures you are paying/accruing the right tax
• Has immediate positive effect on cash flow
• Puts tax determination in your hands
• Very robust approach
 Concerns/Limitations
• The initial set up is critical
• Managing vendor nexus settings continually
• Not all vendors will be able to be included in
the system

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Polling Question 4
What type of AP process automation do you have?
A. Full automated purchase process validation and review
B. Partial automation with some tools
C. Thank goodness for MS Excel
D. We have no AP review process
E. I don’t know

25. Sovos Tools in the
Automation Process

26. 26
Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.
Global Tax Determination Engine
Tax Content:
• 5500 Goods/Service Codes,
• 300+ Entity/Use Codes with Exemption Logic
• Place of Supply & Situs Rule Determination
Geographic Coverage:
• 14,000 US Taxing Jurisdictions
• SST & Colorado DOR Certified Jurisdiction Look-up
• Up to Seven Jurisdictions per location (State, City, County, Districts, PIF/PUF)
• VAT determination for over 180 countries
Flexibility
• Flexible Data Editor tool for Input, Output and Allocation Rules
• Ability to Create/Modify GSCs, E/U Codes, Taxing Jurisdictions

27. 27
Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.
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

28. 28
Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.
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
 Can be combined with a real time process as well – supporting all AP systems
 Does not interrupt the A/P process
 Can evaluate vendor tax, but invoice has most likely been paid
Batch Determination

29. Tax Tolerance Processing
Complete a tax evaluation (tax quote)
• Validate what the vendor charged on the issued invoice. These transactions get
run as sales tax transactions through the tax engine.
• User interface then displays the original tax from the invoice as well as the
calculated value the tax engine returns, along with the $ variance and %
variance.

30. Tax Tolerance Processing
The user will then be able to filter based on their own business rules to
determine which transaction the business would want to accrue use tax on.
• (For example, some businesses may only want to look at transactions where the
tax amount is over $100 and the variance is >10%)

31. Tax Tolerance Processing (Cont.)
Determine which transaction to post back to the tax engine. The user may
select to post all transactions back to the engine, or just a subset of the
transactions that meet certain criteria.
(These transactions are then re-run as use tax transactions in the engine and
written to audit.)
After the transactions have been posted to the tax engine, the user will be able
to go back and reverse the accrual after the fact if needed.

32. 32
Tax Tolerance Processing
Creating journal entries to be uploaded back into the financial system.
The tool provides flexibility in the output format for upload.

33. 33
Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.
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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Polling Question 5
What are your biggest concerns for your AP tax compliance?
A. We don’t have a process
B. Under accruing taxes due
C. Overpaying tax to vendors
D. Both B & C

35. Summary

36. Take Away
1. Manual processes cost business both
in over payments to vendors and
interest/penalty issues during audit
2. A/P processes and use tax review is
an area where the tax dept. can
directly contribute to the bottom line
3. Automation allows resources to be
focused on strategic initiatives
4. Multiple options for process
automation available, can be tailored
to specific needs

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Q&A
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