A Big Payoff from Sales/Use Tax Automation

The ABB Group, a provider of automation and power technologies, is one of the world's biggest conglomerates, so when I got wind of an indirect tax software initiative at the firm, I was eager to find out about it. I talked with Peggi Rockefeller, director of sales, property, and indirect tax, who explained how ABB is pulling a very impressive ROI from the project.

John Cummings: When did you implement your transaction tax solution?

Peggi Rockefeller: We chose to upgrade our tax technology to coincide with a major ERP implementation -- we were moving 20 ERPs to one version of SAP! At the time, we only had a few bolt-on sales tax modules for certain businesses; I realized that we absolutely had to have one standard solution for taxation, and I wanted to go Web-based.

The process started in 2008 with blueprinting the solution, and it was basically a two-year implementation process through Q1 2010. Actually, we started with 19 ERPs, but in the midst of our process we acquired another company that had to be integrated into the new landscape in Q1 of 2010. At that point, we were easily able to migrate the acquisition into SAP and Vertex. Overall, though, this project had a very aggressive time line because you're talking about literally dozens of divisions. There were many who said it couldn't be done.

JC: You mentioned that you wanted something Web-based. What other criteria did you have in mind?

Rockefeller: I wanted to evaluate the available packages for ease of use, customer service, cost to maintain, etc., and we actually looked at three different providers. Probably our biggest concern was to fully understand as much as we could about what differentiated each package. But, to be honest, a lot of it had to do with cost. We were looking for a low-cost option that could get us to the best place. So we did some extensive research before I came up with Vertex as our provider.

JC: What were the key issues that you wanted the software to resolve?

Rockefeller: Probably our biggest challenge was that, because our company is a result of a bunch of acquisitions, we had so many different ERP systems to deal with. The divisions had their own way of taxing within their ERPs; only a few were fully automated.

Even though we were able to consolidate on the return side, we had a very manual process for merging all the divisions and their data for reporting purposes. We had heavy, heavy reliance on IT for the consolidation that needed to be performed every month, and that was difficult because it was out of our control. Of course, it's at the beginning of the month that you really need the consolidation to take place as soon as possible; most of the returns are due on the 20th. But if the IT person who normally helped us was unavailable, nothing got started until they were able to run the numbers. That piece of it was out of our hands.

For sales and use tax, you have a very short period of time to consolidate the numbers and get the returns out. If that period gets shortened by the fact that you have too much IT reliance, it puts a strain on the entire process.

Another issue was the resources that we needed to handle compliance. Anytime you add manual adjustments to any process, you add more time spent on that process than you really need. So we looked at this and said, "We need to automate, and we need to automate to the nth degree -- to go all the way." I came to the conclusion that we needed to evaluate providers and come up with a solution. After that, it was basically a sell job!

JC: What other parts of your tax infrastructure does the system integrate with? Does it cover use tax, customer exemption management?

Rockefeller: Absolutely. We decided that not only were we going to implement within two years utilizing the sales tax module, but we would go ahead and purchase the use tax module, too. We decided to implement both modules at the same time -- in tandem with the ERP to SAP rollouts! It was quite an undertaking, because the use tax side is extremely complicated.

JC: So you went whole hog ...

Rockefeller: We went whole hog. You're either going to pull the band-aid off slowly or just rip it off. To me, I figured we already had people involved in it; to say "We'll do sales tax now and then in two years we'll implement the use tax side" made no sense. You have to strike while the iron's hot, when you have people's attention and you can get the funding. That was my philosophy, and that's what we decided to do.

JC: What are some of the results you've achieved?

Rockefeller: A couple of things. Before, as I said, we had a patchwork. Some businesses were using Vertex in limited scope, some weren't using anything at all, some were just performing manual adjustments. But what we were able to do was basically bring all of our businesses under this one taxing umbrella, utilizing the Web-based version of Vertex, at one third of what we were paying for only a few of the businesses -- I'd say four or five of them -- before the implementation, in terms of overall cost.

Now we've got everybody on, and we have them all treated the same way up front and reporting in harmony as well. We're now also accruing use tax automatically, which in the past was a completely manual process.

We have much better transparency with the current system. Since it's a Web-based product, it's easier for others to gain access to what they need.

We have more time now. When we were dependent on IT for consolidation, we probably didn't get started on filing returns until the fourth or fifth workday at the beginning of the month. Now, day one, we're ready to go.

We have more time for analysis. Manual adjustments have decreased to the point where we're probably seeing at least a 10 percent reduction in compliance hours, even though we've brought in another acquisition.

Since we started this process, we've lost two people in compliance, and we're still able to crank things out accurately. So in part it's about people working less late hours -- yet it's also about the fact that we're still able to handle our compliance responsibilities with the personnel reductions.

JC: What about the value-add side?

Rockefeller: These days, resources are scarce and companies are looking at ways to cut costs every day. However, the compliance team has to ensure that tax transactions process correctly, and they have to produce returns accurately and in a timely manner. That's still the most important task in the tax department, before we even get to the value-add. Now that we've already reduced compliance time, there's more time for the value-add.

As we were completing our rollouts at the end of 2009, we talked about goals for 2010 and our VP decided to task me and indirect group with bringing in $1 million. And I can tell you I was like a deer in headlights when that came up. But the thought was, "Let's show people that we're not just a cost center, that we can produce revenue." And I said, "You know what? I'm going to take that challenge."

We started looking at unclaimed property, we looked at appealing a property tax issue, performing our own reverse audits, things of that nature that we'd never had time to work on before or where we'd previously used consultants. I'm proud of the whole group because everyone rallied together and realized, hey, the first thing is compliance -- you've got to get it right, and get it out -- but we do have more time for the fun stuff, the stuff that's bringing in the money.

We created a thermometer to track our progress and we've been moving that thing up. To date, we're at $982,000. I have no doubt that we'll get to that $1 million mark by the end of the year. It's also a great morale booster.

JC: Any tips for a tax leader who's thinking of investing? Anything you would have done differently?

Rockefeller: First of all, you need to set the stage to influence within your organization if you want to implement new tax technology. Think about who will ultimately decide on financing. Is it the CFO? Then you need to make sure you've got backers (from outside of tax) whom the CFO will listen to, and you also need to be fully prepared to defend your proposal.

Prepare, prepare, prepare: Make sure you have your ROI numbers, and perform extensive research on the technology packages that are out there; be prepared with pros and cons.

Understand within your own organization what the limitations are these days. Is your company still looking to cut expenses because revenues are not where they need to be? You need to be aware of that, because at the end of the day this may be a strictly dollars and cents decision. If you go in there and say "My recommendation is X, and it's three times what the other products are," good luck getting anybody to go for that.

As far as what I would've done differently, I should have brought the value-add piece into the calculation when making my pitch to upper management at the beginning of the process. I never thought of it at the time -- I just focused on the ROI numbers -- but it would have been great for me to say, "If we're saving on compliance time, our people can bring in extra dollars working on other things." Which is exactly what my VP did with the challenge for 2010. It's great to have your organization think of your department as a function that can bring money in the door, instead of focusing solely only on what you cost. ###

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