Transactional Tax Compliance for the Modern ERP System

What many companies overlook is that transactional tax compliance is a critical piece in each of these business areas. Learn more.

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    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. Implementing an ERP system also unites the many areas of your business that might have previously been disparate. 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, thus uniting all of the information and activity from these various business functions into one, centralized location.

    What many companies overlook is that transactional tax compliance is a critical piece in each of these business areas. This is why it’s important to 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 far beyond an ERP’s core financial functionality; it can also arise in modules like Project Accounting, Distribution, Inventory, and Credit Card Payment. While ERP systems unite these functions, they don’t easily mitigate the tax compliance burden that comes along with them.

    Take transactional tax, as an example:

    Many ERP systems still rely on legacy processes (which tend to be manual) to manage transactional tax even though they have the ability to automate tax compliance via out-of-the-box integrations. Many companies handle transactional tax compliance one of three ways:

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    1. 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 By using out-of-date rates and rules, they’re effectively setting themselves up for an audit;
    2. Constantly update rates manually, which is a huge drain on time and resources; or
    3. Pick an average rate and apply it across all transactions.

    Without an automated solution within the ERP, calculating sales tax basically requires you to upload rate tables, enter and track sales tax schedules in each applicable city, county, and state as well as rules, rates, and boundary changes. Address validation functionality is limited to ZIP codes, which aren’t always accurate, leading to wasted time tracking down correct addresses and contact information and charges from carriers for undeliverable items. That’s an incredible amount of information for any business to manage manually. 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.

    Luckily, there are compliance solutions that can be turned on within Microsoft Dynamics to automatically address these gaps. 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.

    Learn more by reading the free whitepaper, “Compliance in the ERP.”


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