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7 Key Reasons to Automate
Your State Tax Apportionment Processes
Has your tax organization implemented controlled processes for gathering, calculating, and reviewing apportionment? Are you able to follow a meticulous audit trail to track all apportionment details on your tax returns back to the original source? Is your apportionment data centralized, of high integrity, and immediately accessible to the compliance, tax accounting, planning, and audit teams?
If you answered “no” to any of these questions, you aren’t alone.
In fact, our research shows that in the vast majority of corporate tax departments, state apportionment data handling, analysis, and reporting is conducted utilizing a multitude of spreadsheet-based models. This manual approach provides limited (if any) security or controls, serves up a host of inefficiencies, and dramatically increases the risk of error. Unfortunately, given resource constraints and a lack of viable alternatives, tax operations have, to date, been unable to radically change their current mode of operation.
With today’s advancements in technology, however, this situation can change. To get a sense of why it would be valuable to look to automation now for managing state apportionment, consider these seven essential benefits:
Today, in most tax departments, labor-intensive, error-prone spreadsheets are used throughout the apportionment process. Unfortunately, these manual methods increase inefficiencies in collecting, consolidating, manipulating, and reporting. Moving to an automated system will reduce—and in some cases, eliminate—reliance on offline spreadsheets because data will be collected directly into the software, calculation logic will be embedded, and most, if not all, rules and rates will also be part of the system.
It is a widely recognized fact that spreadsheet-based tax packages can be easily altered by users—and often are—which introduces a number of inconsistencies into the data collection process. In addition, when data is gathered inconsistently, consolidation of that data becomes more and more challenging. Migrating from traditional Excel tax packages to a centralized web-based tax package will not only provide a method to standardize the data collection templates, it will also streamline access for your tax package providers, as well as eliminate the need to rekey or manually consolidate the data after it is gathered.
Changes and adjustments during the apportionment process are frequent and rarely documented—making it difficult, and often impossible, to determine the original source of the data or the original values. Leveraging automation that keeps a detailed audit trail of all the changes not only improves accountability, it also ensures that you are able to recall data, reports, and calculations as of any point in time. You will no longer lose the actual as-filed data once subsequent or amended returns are filed. Instead, you will be able to instantly “roll back” to any point in the process to compare and contrast the information.
In most apportionment processes, work papers and supporting documents are rarely centralized or consistent, and are often misplaced—impeding the ability to quickly re-create history. With an automated system, users are able to enter comments directly into the system and attach relevant documentation to support their decisions, positions, and methodologies.
Questionable data quality, or lack of access to critical information, can compromise decisions made throughout the tax department. Given that apportionment data is so fundamental to the day-to-day decisions surrounding state provision, compliance, estimated tax payments, audit, and planning, it must have high integrity and be readily available. Leveraging a centralized data management system will not only improve data reliability, it will also provide immediate access to the information needed to support timely decisions.
Segregation of duties and security are virtually impossible to enforce within a manual process, and in today’s Sarbanes-Oxley world, this lack of control is no longer acceptable. Fortunately, with contemporary software technology you are able to configure the system settings to meet your company’s specific security requirements. In addition, evolving from the world of single-user spreadsheets to a multi-user software application also provides you with the ability to design, implement, and institutionalize best practices for the apportionment management process.
While they are good for many things, spreadsheets are not very useful when you are trying to generate reports. Having to rely solely on spreadsheets to satisfy requests for information is not only time consuming, it can also limit the types of reports/views you are able to create with your data. Leveraging a true reporting system will both speed the report generation process and ensure accuracy in reporting. In addition, advanced reporting capability dramatically increases the breadth and depth of the reports for enhanced visibility into risks and opportunities.
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