Companies often transition to an enterprise resource planning system (ERP) to scale operations, automate processes, and achieve greater visibility into core business functions-all in service to a stronger bottom line.

However, choosing the right ERP is more than a software decision. Armed with more information, investing in an ERP yields better results and addresses time drains such as exemption certificate management and transactional tax compliance.

Before you Buy: Which problems will your ERP solve?

ERP systems provide flexibility and add functionality as your business grows. For example, if you engage in a supply chain, you might choose to add modules for warehouse inventory, distribution, order processing and point of sale.

Average increase in profitability achieved through successful ERP implementation—18%.

- Sage Customer Survey

The challenges an ERP typically handles include:

Scaling the workloadManaging data and reporting more efficiently and quicklyIncreasing visibility into various functionalityAddressing core functions at the macro and micro- levelsGreater compliance with state and federal regulations

What many companies overlook is that transactional tax compliance is a critical piece in each of these business areas. This is primarily due to companies not fully realizing the impact ERP tax compliance tools can have on different areas of the business and underestimating their value.

Identify specific compliance tasks your ERP can handle.

Pay close attention to the audit controls your ERP system provides and make sure you cover all the bases. The risk for non-compliance can extend beyond an ERP’s core financial functionality; it can also arise in modules like Project Accounting, Distribution, Inventory, and Credit Card Payment.

Transactional tax compliance,  SOX compliance COBIT

As more commerce moves online, federal leaders have sought to protect consumers with various legislative controls such as Sarbanes-Oxley Act (SOX) and Control Objectives for Information & Related Technology (COBIT), and Marketplace Fairness Act. All of these compliance measures address how business information is processed and reported or whether sales tax should be charged for online purchases. A properly deployed ERP system can handle compliance with a high degree of accuracy and reliability.

Take transactional tax. ERP-users typically handle transactional tax compliance one of three ways:

Enter sales tax rates and think that’s sufficient, not realizing rates, rules and boundaries change constantly. By using out-of-date rates and rules, they’re effectively setting themselves up for an audit;Constantly update rates manually, which is a huge drain on time and resources; orPick an average rate and apply it across all transactions.

“I was picking the brain of my accountant friend the other day about auditing—sales tax audits specifically—and I was curious to know how he has time to calculate sales tax with all of the thousands of different jurisdictions that are split up in such confusing ways. It was interesting to hear his response: ‘There’s no possible way we can accurately calculate sales tax with the time and bandwidth we have, so we estimate an average and hope it balances it out.’”

- CFO, Manufacturing Company

Without an automated solution within the ERP, manual entry of city, county, and state rules and boundary changes is required. Address validation, the means by which the rate assignment is confirmed, is typically limited to ZIP codes. This can result in collecting the wrong sales tax and remitting it to the wrong jurisdiction—a mistake that can result in costly audit fines, fees, and penalties.

The centralization and automation of core functions means an easier way to monitor all aspects of the supply chain and lays a strong framework for compliance with an array of regulations.

Implementing an ERP impacts all aspects of your organization. Each department has a stake in the ERP each with their own module (from Sales to Accounting to Warehousing). Each module within the ERP requires a needs assessment that ultimately supports cross-department tax compliance.

However, if the legacy programs within your ERP provide insufficient support to achieve compliance, you could be risking audit and associated costs.

Legacy capabilities versus those requiring customization.

While ERPs create a strong framework for automating aspects of the supply chain as well as increase efficiencies among core functions, other business tasks are still handled manually. Many of these elements are compliance related. While ERPs are robust, they’re not designed to create “audit-ready reporting” by themselves. To tackle compliance fully, an ERP can be strengthened by integrated compliance solutions.

Luckily, there are compliance solutions that can be turned on within the ERP to automatically address these gaps. One such case: transactional tax compliance.

Problem solved!

When you turn on Avalara AvaTax, the tax decision engine delivers instant address validation and sales tax calculation across multiple states and tax jurisdictions. Geo-location mapping (similar to GPS technology) determines tax rates “down to the rooftop” with exact longitude and latitude for each transaction so the right tax is collected each and every time.

Many companies along the supply chain know first hand the time drain and error-prone process involved with tracking, filing, collecting, and reporting on exempt sales. And most are aware that exemption certificate mismanagement is one of the leading causes of audits. All of this can be addressed by Avalara’s suite of solutions within the ERP.

You can’t afford to wait. Call today.

Supply Chain Compliance Risks

This infographic highlights transactional tax compliance challenges at each point in the supply chain:  “Sales Tax Risks in the Supply Chain.”

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