Although some supply chain organizations are willing to admit they are guilty of such a practice, many don't realize that identifying hidden costs provides an opportunity to improve processes and streamline business functions to reduce overall costs as well as risks. As far as your supply chain is concerned, there are five areas where hidden costs can wreak havoc on your business overhead and bottom line:
- Personnel management
- Reporting and analysis
- Credit tracking
Logistics as it applies to manually managing your sales tax process concerns the processing of mail, maintaining copies of invoices, receipts, forms notices and other noteworthy documents. The cost of filing and storing this paper trail speaks for itself; however, there are other notable areas that can rack up the bill.
- Notices: The time sensitive nature of notices and the cascading effect of notice mis-management, make this area especially likely to increase risk of assessments and increase cost in penalties and interest. Thus, if one person is handling this and they happen to “miss” it, extra time and cost in penalties will ensue in order to bring a business back into active status in the state.
- Records Retention: For manually managed systems, records retention costs can stack up for organizations paying for additional storage facilities and supplies. Other costs related to records retention include, but are not limited to: labeling, filing cabinets and boxes.
Personnel Management and the hidden costs of your manual sales and use tax system involve more than just “payroll.” Personnel management encompasses the costs of bringing additional people on board, then paying the repercussions for hiring these additional people that just so happened to be non-tax professionals. More than likely, your personnel management is adding missed deadlines, stress and inefficiencies to the tab; making is a costly area for manually managing your taxes.
Reporting and Analysis
Reporting and Analysis, as well as its relation to supply chain visibility, is often a pain point for supply chain organizations. Chances are if you are manually maintaining your sales tax system, you probably are not able to pull up records, information across a time dimension, locations and activities at the snap of a finger.
- Filing: The time it takes to gather reports and file sales tax returns is an added hidden cost. Activities and items that contribute to this cost include: copies, files, staff and other tasks in order to handle sales tax demands.
Most financial applications, Enterprise Resource Planning (ERP) and solutions such as Microsoft Dynamics AX and NAV do not capture full audit details. The costs of an audit include extra costs for legal support, penalties and fees, charge-backs and reimbursements as well as loss of productivity. Without full information readily available, the risk of a costly negative audit is enough to sentence a supply chain organization to death by taxes.
Costs related to credit tracking are credit memos or charge-backs to a customer who has been improperly charged sales tax when they are tax-exempt. Examples of this are charging customers that do not have sales tax nexus in a certain state or those that have a sales tax exempt certificate. These credit memos and charge-backs not only rack up costs of their own, and damage customer relationships but also include the costs of filing an amended return.
Aside from the fact that manually managing your sales and use tax process is extremely risky and costly, the amount of personnel, paper trails and disorganization is enough to give anyone a chronic migraine. For the sake of your personal health, and if not for the financial well-being of your business, tune in next week for our informational webinar Stay Ahead of Sales Tax Changes by registering here.