This week, our blog series features tips and tricks on segregating tax, freight and discount so you can add accuracy and value to your procurement-side tax automation. 

Although many companies separately store tax, freight, and discount amounts paid on each invoice, there are still far too many that don’t. These companies may not realize it, but failing to do so can really compound the complexity of performing audit controversy, reverse audit, and due diligence projects on their data.

It’s important to segregate sales tax amounts so you can properly validate the amount of vendor tax paid in real time or after the fact. It’s equally important to do the same with accrued use tax, so you can prohibit your automated system from applying tax on tax, and/or obtain proper credit under audit for those accruals. 

Freight and discount amounts should also be separately stored, as they can impact your taxable base in different manners. In most cases, vendor discounts should reduce the overall amount tax due on the invoice, but freight amounts can often increase or decrease the tax amount (depending on the items being purchased and the freight terms). If you segregate and store both of these values, it should cut down on any ambiguity down the road.

Most ERPs provide a way to easily segregate and store all three of these values on each invoice, so it’s just a matter of implementing a policy for your business to do it. Based on prior experience, the potential return on investment for doing will be enormous.