Overcome C-Store Excise and Sales Tax Challenges with Comprehensive Solutions
This report focuses on the benefits of comprehensive tax solutions, especially with regard to excise and sales tax management for convenience stores. The report also discusses issues of automation and technical integration as they relate to these solutions.
The Three Certainties in Life (Not Just Two).
They say that in life there are only two certainties: death and taxes. But is that really all that’s certain? What about the inevitable tax code changes that accompany taxes? If you’re a CFO, a CPA, an accountant, or tax analyst, you’ll agree that the ever changing tax-landscape is a certainty as well. Since 2001 Congress has enacted over 5000 tax code changes — about 500 changes per year. This number does not include state and municipal tax code changes. The significance being that federal tax code is at least centralized, but keeping abreast of state and local tax code requires monitoring multiple jurisdictions, each with their own process. C-stores have a harder time keeping up with those changes than the federal ones. Changes to the tax code are inevitable and ubiquitous. With those changes comes constant pressure for vendors to stay up to date and keep ahead of tax management pitfalls. This raises the question, “How can an organization efficiently keep abreast of all this change?”
Aberdeen Group’s survey on excise and sales tax management (March 2016) revealed that organizations with comprehensive tax solutions, were significantly more likely to enjoy premier capabilities in their tax management (i.e. excise tax calculations, preparation, filings, etc.). Top comprehensive solutions not only improve tax processes but also improve other elements of financial management (i.e., more accurate real-time cash information, collaborative enterprise-wide data sharing, etc.) via integration with back-office systems and platforms. Automated updates and alerts constitute another benefit of such solutions. In other words, as this report will demonstrate, the capabilities afforded by fully loaded, comprehensive tax solutions effectively address numerous industry and organizational pressures around tax management.
The U.S. tax code contains approximately 3.7 million words.
“Given that Amazon.com’s statistics note that the median length for a novel is 64,000 words, you’d be looking at a tax code that takes up 58 novels (Williams, 2015).” How confident are you that your tax team fully understands this code in its entirety and is able to keep pace with its constant changes? Comprehensive solutions provide automatic updates and alerts on tax code changes.
Pressure to Keep Pace
The rapid pace of tax code change is daunting. The challenges presented by this rate of change are felt most acutely by companies which operate in numerous states/provinces. (Going forward, we will refer to jurisdictions to represent both US states and Canadian provinces). The number one and number three pressures experienced by convenience stores (see Figure 1) relate both to the pace of change and the fact that changes vary based on geography.
Figure 1: General Business Pressures Affecting Tax Management
“Increased amount of delivery diversion across jurisdictions” (top pressure) refers to tax management difficulties arising from goods being delivered to alternate jurisdictions rather than the original destination. Delivery diversion requires on-the-fly adjustment to tax considerations and filings; 56% of all respondents identified this as a top pressure.
The third pressure, as you can see, is also geographic in nature. The wider an organization’s diaspora of operations, the more distinct and voluminous the amounts of tax law to be navigated. Automated alerts and updates, such as those provided by comprehensive tax solutions, can greatly ease the pain of accounting for the specific differences in tax code across multiple jurisdictions.
Automation that can help make changes to filings based on geographic distinctions also alleviates the top pressure identified by respondents working directly in tax management: the challenging nature of keeping up to date with changes in tax laws (see Figure 2). The remaining pressures named by this group — the high costs for tax preparation; increases in product mix; inaccuracies leading to an audit — are all better served by comprehensive solutions.
Figure 2: Specific Departmental Pressures in Tax Management
Defining the Terms
Semantic misinterpretation of referenced terms can sometimes be an obstacle to full understanding. Here we clarify frequently used terms regarding the tax solutions:
Comprehensive: Comprehensive solutions are overarching in scope, accounting for the variances in tax codes across state/province lines as well as product-type. Automated filing and reporting, analytics, as well as alerts (to tax code updates, discrepancies in anticipated filings, etc.), are all common features of comprehensive solutions.
Stand-alone: Refers to tax software more limited in scope or function. Solutions of this variety may be (a) dedicated to product-specific taxes (i.e. alcohol only, fuel only, etc.), (b) unilaterally focused on tax-type (i.e. excise, sales, etc.), or (c) may not even be a tax-specific system, but rather software whose data is then incorporated into enterprise wide systems (i.e. spreadsheets).
Integrated: We define integrated solutions as utilizing either comprehensive or stand-alone solutions which may then be fully incorporated into enterprise-wide back-office systems (such as ERP, accounting or finance systems, etc.). The deeper the integration, the more insightful and robust critical financial information is disseminated to key stake holders.
Convenience Store Tax Solutions – Comprehensive vs. Non–Comprehensive
When reviewing data, the natural tendency is to look for outliers and the largest spreads or deltas. That being said, Leaders in convenience store excise and sales tax management are fairly similar to their peers, though still 7% more likely to employ comprehensive tax solutions. There were equally small spreads between Leaders and Followers solutions dedicated to specific product mix. However, the differences become much more pronounced when you look at the capabilities enjoyed by convenience stores relying on comprehensive solutions (see Figures 3-4).
When segmented by the technology enablers required for convenience store sales tax management, it becomes clear that companies utilizing comprehensive solutions have far better coverage than those employing standalone solutions (see Figure 3). Respondents with comprehensive solutions, for example, were 82% more likely to have sales tax calculation incorporated. Being able to calculate sales tax is obviously essential for any business, but comprehensive solutions are best equipped to account for sales tax variability across jurisdictional lines in their calculations. As changes to jurisdictional tax laws arise, there is possibility for previous calculations to be missed. There is also the potential for human error in calculations where some standalone solutions exist (i.e. providing errant formulas in spreadsheets). These are risks in tax management that must be mitigated.
Respondents with Comprehensive solutions were found to be 2.2x as likely to have sales tax preparation and filings capabilities.
Figure 3: Identifying Technologies Amongst Sales Tax Solutions
In the case of all the other tax management needs of convenience stores, we see that those with comprehensive solutions are more likely to have the necessary capabilities. Organizations with such solutions are also 2.1x as likely to have POS systems where taxes are calculated immediately. When it comes to sales tax preparation and filings, they are 2.2x as likely to have that capability. In fact, these respondents were also 52% more likely to have the ability to calculate excise tax.
Risk associated with motor fuels excise tax can be significantly higher than with sales tax due to the large allocation of costs tied up in fuel inventory, rapid inventory turnover (leading to lots of fuel transactions), and the high tax liability associated with each fuel transaction. This is not trivial. Inaccuracies in excise tax calculations, especially pertaining to fuel invoices, can create real, heightened risk for retailers. It is not uncommon to see error rates as high as 55% in this area1. Automated calculation greatly reduces this exposure. Limiting this area of exposure not only reduces chance in error but also frees up resources to attend to more critical processes.
By consolidating these critical tax functions within singular comprehensive solutions, time and efficiency are increased. The holistic assimilation of data spread across various products and jurisdictions, all of which come with unique variances in tax code applicability, allows for automatic adjustment. And, where discrepancies exist, alerts key stakeholders.
While Figure 3 highlighted sales tax calculation and processing benefits, Figure 4 (below) focuses on excise tax management and the back office integration. These capabilities provide downstream benefits for financial management (especially around risk management and FinOps).
Figure 4: Tax Management and Financial Management Capabilities
We saw above how comprehensive solutions provided excise tax calculation capabilities. Here we find that those users employing comprehensive solutions are 2.6x as likely to have an excise tax preparation and filing capability as well. With greater accuracy and expediency in tax reporting, downstream financial reporting becomes faster and more accurate as well. Finally, from an operational level, those respondents with comprehensive solutions were found to be 66% more likely to be able to integrate the solution with their ERP or accounting platform.
Where to Place Trust – Leaders vs. Followers
As previously indicated, comprehensive solutions improve tax management not simply by providing a centralized platform to update tax code, but also via automated calculations, adjustments, and alerts, where applicable. Figure 5 below illustrates capabilities that help to alleviate the corporate and departmental pressures in tax management.
Figure 5: Leaders Trust Automation to Support Tax & Financial Management
Leaders were found to be 21% more likely to employ automated alerts based on tax regulations. For non-fuel, nor cigarette products whose excise tax is typically calculated in bulk at the supplier/distributor level. Leaders were also found to be 26% more likely to calculate excise tax at the point of sale and 18% more likely to receive alerts when filings did not equal calculated expectations. All of these tendencies of Leaders were clearly highlighted as capabilities that comprehensive tax solutions enjoy. Though the differences in usage rates may not be staggering, the benefits that Leaders realize are, as Table 1 shows, still significant — across a range of performance metrics, Leaders see greater improvement than Followers.
Miscalculations and errors in taxes may not be isolated occurrences but rather reoccurring and compounded over many years. Over time, they may incur serious financial, and/or regulatory repercussions. These ramifications make the Leader’s benefits in sales and excise tax management that much more substantial.
Table 1: Metric Comparisons
Managing excise and sales tax is neither a simple, nor static process. There is a lot of room for error and potential exposure to financial and/or audit risk is equally high. There is little reason to rely on stand-alone systems, manually entered spreadsheets, or outsourced services when comprehensive, automated tax solutions exist. In considering the value of comprehensive tax solutions, bear in mind the following recommendations:
- Automation is king – Following updates to the tax code can be overwhelming. It’s bad enough keeping track of constant changes, but on top of that you need to painstakingly amend the tax process workflows accordingly. Let automation relieve you of this burden.
- Integration is Queen – Integrated tax solutions not only assist with tax management, they also meet other financial management needs (i.e., providing real-time cash information, collaborative enterprise-wide data sharing, etc.). Having accurate tax information is great. Having that and real-time data in financial operations be equally accurate and updated is exceptional.
- Leaders benefit from alerts – This is because of the variety of tax based updates (i.e. discrepancies in anticipated tax filings, updates to tax codes).
Providing your organization with the most robust comprehensive solution will ensure it is in the best position —thanks to the automated updates and alerts such solutions feature — to avoid the pitfalls and obstacles that tax management frequently presents.
Reduce Work and Ensure Compliance with an Excise Tax Engine; April 2015, The Roadmap to Sales and Use Tax Compliance; April 2015, Cloud Solutions Provide Essential Sales and Use Tax Capabilities; April 2015, The Costs of Compliance: Strategies for Automating Tax Management in the Cloud and Avoiding Hidden Costs; January 2015
1 “Fuel Quest, Accurate Invoicing: Building Trust Between Fuel Supplier and Buyer.” Insite 360 FuelQuest. June 28, 2013 [webinar]
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