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Is "lowest cost per transaction" the right goal for sales and use tax outsourcing success?

Historically, sales and use tax outsourcing has been focused on operational efficiency.  The presumption is that the client maintains a high-level of sales and use tax expertise in-house and relies on the service provider's systems and technology to achieve a low cost per-transaction.

The cost per-transaction is driven down by standardized processes and requires each client to adhere to stringent guidelines that removes the flexibility in the engagement.  The process can be characterized as a "factory" that is focused on taking data inputs and producing tax returns rather than an intimate understanding of the client's business and personalized service.

Let's look at a common situation that often goes awry in an outsourcing relationship - credit processing.

In this scenario, the full amount of tax has been invoiced, accrued, and the data transferred to the service provider for reporting.  At some point after the fact, but before the current month's returns are prepared, an exemption certificate is presented.  The client wants to reduce their liabilities by the amount of the credit.  If the outsourced vendor lacks flexibility in their process, they will not be able to react quickly enough and the credit will not be deducted.

In a similar example, the exemption certificate is presented in a later month, after the return has already been filed.  Now it gets tricky.  A factory-driven engagement will have a "one size fits all" approach that will typically look to offset the credit against current period liabilities.  This is all well and good unless their is insufficient current period liabilities.  Now some real-time decisions need to be made.  Can I use liability in a nearby, like jurisdiction to offset the credit?  How long will it take to offset the credit?  Should I file a refund claim?  This is where the "factory" breaks down.  Remember, this type of service is based on a one size fits all model and changes to the process are discouraged by the vendor and cannot be readily incorporated.

For more details on the differences between the two major categories of sales and use tax compliance services you can review our white paper.

Brian Greer

Written by Brian Greer