Corporate tax departments have been the forgotten stepchild of financial IT innovation--until now. According to a new survey by KPMG LLP, 70 percent of the Fortune 1,000 tax directors polled say they are currently leading radical restructuring efforts focused on using technology to reduce paper and manual data entry. "This is the type of reengineering that happened five years ago in other departments," says Steve Martucci, a partner in KPMG's Tax Management Solutions Practice. "Many companies are still just dealing with drawing financial accounting directly into tax software." And few companies are even close to being able to reorganize data electronically or leverage corporate intranets for tax purposes.
Reducing the effective tax rate (ETR) is the goal of nearly half the 273 tax directors surveyed. Increasing cash flow, tax compliance, tax deferral, and audit defense are the other top objectives. And while technology upgrades don't directly reduce ETR, they can free up time for tax staff to focus on tax strategies. For instance, before Rich Schoenthaler, Ecolab Inc.'s manager of regulation and public affairs, implemented software programs to pull accounting data into tax programs, his 14-person department had little time to check its work for accuracy, much less plan strategically. "With regard to property tax," he says, "we got the bill and sent the check, because the process was so time-consuming."
One reason tax departments lag behind is that IT providers have been slow to tackle the area. For ex-ample, enterprise resource planning systems don't ad- dress tax needs. Also, many software vendors have been scared off by the frequent product updates that tax laws demand, says Diane Tinney, information coordinator for the Association for Computers and Taxation. However, corporate IT liaisons drive technology efforts forward, says Campbell's Soup Co. tax manager Riza Cebula, who contends the corporate link is "critical."
Automation has its problems, though. The tax chief at one of the most sophisticated shops in the United States declined to comment for this story, for fear the IRS would start demanding additional information once it recognized how easily it could be pulled from the system.
TAX DIRECTORS WEIGH IN
Reasons for improving tax processes
- Effective Tax Rate 46%
- Cash Flow 24%
- Compliance 16%
- Tax Deferral 10%
- Audit Defense 4%
Source: KPMG LLP Tax Management Solutions Practice