5 Transaction Tax Automation Features Your Business Can’t Do Without

What makes software interesting and for some people downright fun? Features. While some may disagree, I get excited, and I think many of you do too, when a transaction tax solution has a cool feature that solves a real world problem, elegantly. In the process, it also saves you and your company time, effort, and money.

At the risk of sounding like a “tax nerd”, wait, I’m not ashamed; I’m going to share with you five software features that your business can’t live without. Some are a bit “IT” technical in nature while others are more “Tax” technical, but all of these features will help you and your company solve just about any transaction tax problem. I hope you get as excited about these as I am.

1. Exemption Certificate Portal

What it solves: The Exemption Certificate Portal is a place for your customers to enter and upload their exemption certificates for you to review and approve. Your team no longer has to spend time asking for, scanning, and entering exemption certificate information.

How it works: The system sends an e-mail to your customer or a group of customers with a specialized link to access the portal and enter their certificates. By logging into the portal your customer is able to; 1) see any existing certificates they’ve already provided and their status 2) upload a new exemption certificate choosing from a library of exemption forms 3) fill in remaining detail not prefilled by the system 4) upload a copy of the exemption certificate. It also provides a management console your company will use to manage customer interactions and certificate review.

2. Conditional Mapping

What it solves: Many of you are familiar with mapping your items to product categories from the tax solution provider, or putting one of their product codes in your system. However, sometimes you can’t simply map one item to one tax engine product category. Why? Because the item itself is too broad. Depending on the invoice information, the item could match one product category and at other times it could match a different product category. For example, you have an item called “software” and your system has a different field for “delivery type”, which identifies whether it is a “download” or “ship CD” delivery method. If it is shipped via CD, then the tax engine needs to use the product category for “software delivered via tangible medium.” But if the software is to be downloaded, then the tax engine needs to use the product category “software delivered electronically.”

How it works: Using the example above, with a conditional mapping feature, you can easily configure the tax system to look at the item and the delivery type to determine which product category to use for software per invoice. During tax calculation, the engine can automatically map “software” with a delivery type of “download” to the product category of “software delivered electronically.” But if the delivery type is “ship CD”, the engine would map your item to “software delivered via tangible medium”, ensuring the correct tax treatment. Essentially there are no limits to the number of conditions. I have seen clients use this feature heavily when automating use tax accruals. I’ve even seen configurations where a customer evaluated seven other data elements before mapping items to “machinery and equipment used in manufacturing and processing.”

3. Line Allocations

What it solves: The ability to allocate portions of a line can solve a couple of different problems. Maybe you have a bundled product that includes both taxable and exempt items, or maybe you are selling or buying software licenses (single line) that need to be allocated across multiple locations.

How it works: Instead of having to customize your business system, or require your finance team to take a single line and break it into multiple lines, the allocation feature can do it automatically for you. You configure how you want the line broken up (percentages) and what to do with each resulting piece or sub line. For example, I could configure the tax engine to take an invoice line, which is a bundled item (two products) and using the line allocation feature, I can tell the tax engine that 60% of that bundle is food and to tax it using the product category of food. And, I can configure the remaining 40% to use the housewares product category. This allows me to make sure the bundled item follows the correct taxability. Yes, I would only do this if the jurisdiction allows it. Of course you also have the ability to control when that line allocation should apply to an invoice.

4. Transaction Editing

What it solves: This feature allows you to automatically “edit” a transaction before the tax engine determines and calculates tax. In its most simple form, this feature lets you create if-then rules against the incoming data. I have seen it time and time again be highly effective when dealing with corner cases that are nearly impossible to solve. One very large client using a competitor’s product went from managing 1,000,000 rules to just 3,000 with a feature like this.

How it works: You configure a rule in the transaction editing feature to look at incoming transaction data and then do something. Real descriptive right? Well, let’s use a real world example on the sales side. A company has a blank ship-to address when they bill for digital training or software downloads. They setup a transaction editing rule that looks for an empty ship-to address and then substitute the billing address into the ship-to address. They can even set other addresses in custom fields and used those (I know some of you are thinking that using a billing address wouldn’t be accurate enough for you).

Looking at an example from the purchase/AP side (use tax), a company has a large warehouse that spans a county line. Both counties want their fair share of use tax revenue and each agrees that use tax can be accrued depending on the warehouse dock used for delivery (the logic being that goods delivered to the dock would most likely stay nearby and was a better representation of “transactions” in a county). The client creates a rule that would set the override county for the warehouse depending on the delivery dock.

5. Mapping Tax Results to ERP Accounts

What it solves: This feature allows you to control how the tax result is handled in your ERP accounting. For many ERPs, particularly SAP, you must setup tax accounts and corresponding tax codes to hold tax amounts calculated by the tax engine. These ERPs have standard reports that use those tax codes and account keys to provide detailed tax reports. This is particularly important for global value-added type taxes (e.g. Europe) where you need to capture the nature of the transaction for compliance reporting. For example, a zero rated export is different than a zero rated intra-community dispatch.

How it works: You are able to configure the tax engine to output a specific ERP tax code based on the calculation results. These can also be mass uploaded to save time in configuration.

These are my top five transaction tax software features that I think companies can’t do without, especially global businesses or those with any level of complexity. These five features build on standard tax solution functionality (such as VAT registrations setup, nexus configurations, etc.) that make it easier and more efficient to get tax right. This, of course, means you have a healthier risk posture, improved accuracy, lower IT and resource costs, and better flexibility for growth. All of this can help elevate tax and finance teams from necessary cost-centers to critical strategic leaders.