Sales tax benchmarks and best practices

M a r k C h r i s t e n s o n a n d C h u c k M a n i a c e
June 14, 2017
Sales and Use Tax Process:
Benchmarks and Best Practices for
Retailers
How leading retailers are using sales tax technology to enable
growth by removing the compliance barrier

H o u s e k e e p i n g
I t e m s
• Today’s webinar is scheduled for
60 minutes
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reserved for Q&A
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Agenda
• Challenges and Risks for Retailers
• Strategies and Drivers for Change
• How Leaders Achieve Superior
Results
• Summary
• Q&A

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Research Conducted
by the Aberdeen
Group in April 2017
Feedback from roughly 100 Retail Tax,
Finance and IT Professionals
6

Company Size
34%
9%
16%
12%
9%
19%
0% 10% 20% 30% 40%
Under $50 million
$50 million to $100 million
$100 million to $500 million
$500 million to $1 billion
$1 billion to $2billion
Over $2 billion
Percentage of Respondents, n = 98
Source: Aberdeen Group, April 2017

Respondent Function
7%
22%
36%
36%
0% 10% 20% 30% 40%
Other
Tax
Finance
IT

Respondent Role
2%
30%
33%
36%
0% 10% 20% 30% 40%
Other
Specialist, Analyst, Manager (Department
team member)
Director, Manager Controller (Department
head)
C-Level, VP (functional head)

Challenges
and Risks for
Retailers

Top Challenges (Select 3)
16%
40%
26%
32%
40%
26%
30%
33%
30%
44%
38%
21%
25%
33%
50%
0% 20% 40% 60%
Inefficiency of current indirect tax compliance process
Increased penalties from audit or filing/reporting errors
Change or upgrade in ERP, billing, and purchasing
systems
Business evolution (i.e., mergers, divestitures, new
business lines/products, online sales)
Increased audit frequency and cost to support
Retail More than $1 billion
Retail $100 million to $1 billion
Retail Less than $100 million

Retail Challenges (Select 2)
27%
29%
30%
37%
37%
0% 10% 20% 30% 40%
Collecting and maintaining exemption certificates at the
point of sale
Inability to support tax at the point of sale, wherever and
whatever system / device that may involve (online, mobile
device, etc.)
Distinguishing nexus status for online sales
Maintaining rules for complex SKUs
Difficulty aggregating tax information from multiple
locations
Retailers

Biggest Drains on Business (Select 3)
28%
44%
31%
41%
49%
41%
26%
37%
44%
41%
44%
44%
30%
35%
39%
0% 20% 40% 60%
Researching product taxability and rules / rate changes
within each applicable jurisdiction and state
Administration of taxability changes / tax rate updates
within various systems (including the uploading rate
tables)
Management of customer exemption certificates
Tax return preparation and filing
Time spent responding to auditor requests / notices and
managing the audit process
Retail More than $1
billion
Retail $100 million to
$1 billion
Retail Less than
$100 million

Biggest Risks of Current Process
4%
15%
24%
27%
31%
0% 10% 20% 30% 40%
Other
Opportunity cost of the drain on internal teams
Reputation damage / Lost competitive advantage
Audit penalties from inaccurate filing (known liability)
Audit penalties from not filing (unknown or missed
liability)
Retailers

Polling Question #1
Do you struggle with a gap
between your current nexus
obligations and your filing
status?
• Yes
• No
• Not sure

Future Outlook for Audit Scrutiny (Next 3-5 Years)
54%
43%
2%
46%
51%
4%
75%
22%
3%
58%
40%
3%
0% 20% 40% 60% 80%
Increase
Stay the same
Decrease
All Respondents
Tax
Finance
IT

Compliance Confidence
7.20
7.51
7.78
8.18
6.50 7.00 7.50 8.00 8.50
Average
Average rating, n = 239
C-Level, VP (functional head)
Director, Manager Controller
(Department head)
Specialist, Analyst, Manager
(Department team member)
Other

Performance
Metric Retailers
Number of audits over the past 5 years Over 30
Days to prepare for and complete an audit 8.1
Average penalties paid when audited $47,063
Percentage of revenue spent on penalties due to filing errors 1%
Returns that were 100% accurate over the past two years 73%
Filings that were late over the past two years 17%
Employees to manage compliance 12.1

Challenges and Risks
Summary
• Collision of regulatory complexity and rapid business change
creating compliance challenges
• Increased audit risk and time to support raising the stakes for
Tax, Finance and IT teams
• Researching, interpreting and administrating rate and rule
changes a persistent and increasing challenge
• Data management across systems and entities creating risk
• Managing exemptions and inaccurate, incomplete filing are
persistent challenges creating risks across the board
• Tax compliance a potential blind spot for executives who may
think “we’ve got it covered” when the truth may be different
Nearly 60% agree audit frequency will
continue to increase over the next 3-5
years

Strategies and
Drivers for
Change

Drivers of Change
26%
23%
26%
21%
41%
19%
26%
37%
48%
48%
9%
9%
41%
27%
59%
0% 20% 40% 60% 80%
Geographic change
New product offerings
Business change (e.g., business expansion, mergers and
acquisitions, etc.)
Technology platform changes (ERP, AP, Billing, etc.)
Regulatory changes
Retail More than $1
billion
Retail $100 million to
$1 billion
Retail Less than $100
million

Establishing KPIs
46%
54%
44%
57%
45%
55%
0% 20% 40% 60%
No
Yes
All Respondents
Manufacturers
Retailers
56%

Polling Question #2
Which represents the top action your
organization is pursuing to improve
sales and use tax management?
• Identify areas of internal process improvement
• Hire additional resources
• Invest in improving technology
• Outsource to a consultant
• Centralize processes

Defining Retail Leaders
DEFINITION MEAN CLASS PERFORMANCE
Leaders:
Top 35% of aggregate
performance scorers
98% of returns were accurate over past two years
5% of filings were late over the past two years
1% decrease in the amount of time spent managing compliance over
the past two years
Followers:
Bottom 65% of
aggregate
performance scorers
86% of returns were accurate over past two years
26% of filings were late over the past two years
10% increase in the amount of time spent managing compliance over
the past two years

Top Strategies (Top 2)
18%
24%
29%
41%
59%
0% 20% 40% 60% 80%
Conduct internal audits to ensure accuracy and readiness
for regulatory audits
Facilitate communication and promote transparency with
auditors
Invest in additional technologies to automate / streamline
tax processes
Provide additional internal resources to ensure sales and
use tax management
Focus on internal process improvement to integrate /
streamline tax preparation, filing, and remittance
processes
Retail Leaders

Drivers of Change
Summary
• Regulatory and business change the biggest
drivers of investment and improvement. Look to
these inflection points as opportunities.
• Establishing KPI’s is critical to understanding
where to focus effort on process improvement
• Leaders focus on the mix of people, process and
technology to find the best solutions
• Orgs (particularly smaller orgs) may need to invest
ahead given business strategy
46% of retailers have no established
KPI’s to measure their process

How Leaders
Achieve Superior
Results

Establishing KPIs
41%
59%
35%
65%
0% 20% 40% 60% 80%
No
Yes
Retail Leaders
Retail Followers

Polling Question #3
Does your organization have
established KPI's that you track to
understand how your process is
performing?
• Yes
• No
• Not sure

Technology
53%
77%
82%
41%
71% 71%
53%
47%
71%
34%
59% 63%
47%
53% 50%
34% 38%
63%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
End-to-end
SUT solution
Tax rate
calculation
solution
Tax
preparation
and filing
solution
Tax recovery
solution
Tax
exemption /
certificate
management
solution
Tax
remittance
tool
Audit control
solution
Registration /
taxability
evaluation
tool
Point of sale
solution
PercentageofRespondents,n=84
Retail Leaders Retail Followers

Capabilities
89%
94%
67% 67%
83%
45%
60%
40%
55%
70%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Real-time
updates for
tax regulatory
and filing
changes
Automated tax
calculations
for complex
tax rates and
rules (real
time or on
demand)
Automated
verification of
tax accuracy
(Accounts
Receivable)
Automated
verification of
tax accuracy
(Accounts
Payable)
Tax
calculations
are made at
the point of
sale
Retail SUT solution Retail no SUT solution

Capabilities
89%
72%
67%
56%
70% 70%
35%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Centralized
management of tax
calculations and
information
Database of
historical tax
transactions
Facilitated data
sharing with
regulatory bodies
and auditors
Ability to quickly
tailor business
systems to support
business change
Retail SUT solution Retail no SUT solution

Improved Awareness
5%
80%
15%
39%
39%
22%
0% 20% 40% 60% 80% 100%
Yes
No
Don't know
Retail SUT
solution
Retail no SUT
solution

Reduction in Time with
these capabilities:
48% - hours per employee dedicated to
managing and preparing for an audit
filing and remittance
technology maintenance/updates
Filings that were late over the past two
years – Leaders 5%, Followers 26%
Returns that were accurate over the past
2 years – Leaders 98%, Followers 86%

Leader Results
Summary
• Leaders more likely to have established KPI’s
• Superior results achieved through capabilities that
automate and connect the process end to end
• Capabilities integrated across all systems and
transaction types (AR/AP) with full reporting and
data visibility are keys to effective process
management and audit defense
• Those with full SUT solutions more likely to
recognize their gaps/blindspots
Leaders are significantly more likely to
have an “agile solution”

Taking the Long View
Understand where your business is going
• What strategies are we looking to implementing over
the next 3-5 years?
• What impact will future business and regulatory
change have in creating compliance complexity?
• What are the challenges across our entire process
today and who is being impacted?
• Prioritize what is most important to solve and how it
will support the business strategy
“Innovation distinguishes between leader
and follower” – Steve Jobs

Thank You!
For more
information please
visit sovos.comDownload the report today!

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