Is your Microsoft AX System Optimized For Success?
Story by David W. Emmons, CPA, CMI, Thomson Reuters
Whether your company has either just selected Microsoft Dynamics AX as their core ERP solution or is in the decision making process, there are many things that have to be taken into consideration as the evaluation process unfolds. Like most companies in your industry, the key functional criteria to be considered, in addition to its core accounting capabilities, might be things like scalability, ease of use, time and effort to implement, or maybe even total cost of ownership. But there is another factor that must be considered, and that is its ability to integrate with third-party content providers. What type of third-party content providers would be important enough to include in the evaluation process, you might ask? Well, maybe your thoughts went immediately to solutions such as address validation or commercial commodity management, but the content we are thinking about is tax content, and specifically, U.S. sales and use tax content.
Tax content you say? Yes!
Why? Because it is equally as important as address validation or commodity cleansing solutions, and for some retailers, it is even more important. Consider this: According to third-party market research, any single business process is predicted to have errors occurring between one percent to more than six percent of the time, on average. With errors like this applied to tax data and decision points, your business could easily be subject to significant tax accuracy risks. For example, it has been estimated for every $100 million in transaction value, with an average U.S. sales tax rate of 7.50 percent, there could be anywhere between $75,000 to $450,000 of tax errors occurring within a single business process, on a year-over-year basis. Hidden process errors can quickly compound into unknown operating costs, and if left unmitigated, contribute to significant profit and performance erosion. These estimates do not take into consideration any additional costs like audit penalties, interest, or staff and consultant time spent gathering and analyzing data to defend audits. If you adjust for penalties and interest, this could easily reach to as high as $112,500 to $675,000 per year.
Now do we have your attention?
Sales and use tax, goods and services tax (GST), and value added tax (VAT), or “indirect taxes” as many in the tax and accounting industry affectionately refer to them, can add up rather quickly if left unattended. Even those prudent companies that decide to configure tax content directly within their ERP solution can find themselves facing penalties, interest, and fines if their tax content (rates, rules, codes, and logic) becomes outdated. Tax content can become outdated quickly in the ever-changing world of tax legislations; this is especially true in countries with multi-tier authorities like the U.S., Canada, and Brazil. In the U.S. alone, it is estimated that there are more than 14,500 separate sales taxing jurisdictions which represent more than 45,000 different rates. In addition to these staggering numbers, there are even more complexities such as product taxability – as is the case with software, which could be downloaded or provided in some sort of physical media, which would then require different tax treatment.
In addition, there is the legal concept of nexus, which simply means the level of business activity by a company or person in a specific state, which reaches a sufficient level of presence and therefore constitutes a legal obligation to collect the respective state and local sales taxes. These criteria can be applied to companies, even when their business activities do not include things like factories, employees, or even stored inventory in the jurisdiction. Then there is the challenge of providing comprehensive information about specific transactions to state and local auditors in a timely and detailed manner, yet without providing too much information to create unfair advantage to the auditing authorities due to skewed error rates based on anomalies in sample sets of data. Manually preparing tax returns and compiling audit reports are incredibly time-consuming and can lead to error-prone results. With a modern tax engine, tax management reporting is a standard feature included in the solution, which provides quick and easy reporting capabilities at the click of a mouse. In addition to management (non-statutory) reporting, there is the tax return filing process, which is also included in what best practices suggest as a complete end-to-end solution for tax automation. This part of a tax solution provides signature-ready tax returns that can be filed electronically wherever and whenever authorities mandate it.
Now, if we still have your attention, I would venture a guess that you have thought of the next question, which would be, “How does the tax engine (third-party provider) communicate with Microsoft Dynamics AX?” Good question! And one that is easy to answer. A leading tax solution would also provide out-of-the-box integrations from their solution to other leading ERP solutions. This would include solutions like SAP, Oracle, NetSuite, and PeopleSoft, and yes, Microsoft Dynamics AX. A solution like Thomson Reuters ONESOURCE™ Indirect Tax offers a comprehensive, cloud based tax automation solution that seamlessly connects with Microsoft Dynamics AX for accurate sales tax calculation, easy certificate management, and effortless filing and remittance.
Powered by the industry’s most comprehensive global tax content, the patented ONESOURCE tax engine intelligently delivers billions of real-time tax decisions for more than 16,000 tax authorities globally, right inside the Microsoft Dynamics AX platform, allowing Customers to focus on business rather than compliance and regulation. Built-in address validation and advanced geo-location technology, coupled with real-time, automatic tax rate and rule updates, guarantee the right tax calculation every time. Electronic document management makes it easy to store, track, and update exemption and resale certificates while robust, customizable reporting, and signature ready returns ensure stress-free filing and remittance. Once companies recognize the legitimate need for a third-party tax solution that integrates with their business applications and supports all of their indirect tax needs, the question then quickly moves to, “What is the cost of such a solution, and how do I justify this expense to my management?” The answer to this question is also straightforward, in that there are four key criteria by which any leading solution provider can be measured against, and if delivered, will provide a significant return on investment. They are:
- A single scalable solution that addresses the entire end-to-end tax lifecycle process.
- World-class, SSAE 16 compliance tax content including product taxability, rates, rules, and logic.
- Vendor built, supported, and maintained out-of-the-box integration to their specific ERP.
- Comprehensive summary level and transaction level reports, including User defined ad hoc and savable reports with various types of data analytics.
Once you have selected the appropriate tax solution vendor for the automation of your end-to-end tax process and have successfully implemented and configured it to meet all of your functional tax and business requirements, the value realized by your organization becomes self-evident. This is especially so when you speak to a customer of the vendor who has achieved ROI and is realizing value from their solution on a daily basis.
Dave Emmons is a business consultant for Thomson Reuters. You can reach Dave at firstname.lastname@example.org or contact our Strategic Alliance Manager, Kathleen.email@example.com.