Most third-party tax engines today come with some sort of delivered taxability content, which is why blog number eight, geared towards performing routine taxability reviews is one of our top 10 best practices.
Although many engine providers choose to internally source their content, others choose to outsource and integrate content from known providers like CCH or RIA. Regardless of the manner you receive your content, it’s EXTREMELY important to perform routine taxability reviews to ensure you are receiving your intended results.
Tax statues, regulations, and rules can change somewhat regularly. Even though your provider may tell you they have large teams of folks dedicated to researching and updating all changes to your content catalog, who’s to say they’re finding every change? Moreover, who’s to say the potential nuance impacting the change is applicable to your organization’s facts and circumstances? Keep in mind that transaction taxes are vastly different than other tax disciplines, in the fact that subtle nuances can dramatically change your result.
For example, let’s say you purchase two identical computers for use in your organization. Per your tax engine’s content, the purchase of said computers represent tangible personal property that are subject to tax in the destination state. However, one of these computers is going to be used in the finance department, while the other is going to be used directly on your manufacturing line. In many states, these two different uses will yield a much different taxability outcome. So how is your content provider supposed to provide a one-to-one match to tax each computer correctly? Simple answer, they can’t.
In instances like the above, the provider has no choice but to appeal to the majority. Since most folks are likely to purchase computers for general and administrative purposes, they will probably assign the computer category a taxable result. Therefore, one computer will be taxed correctly and the other one is likely to get an incorrect answer.
In addition to the above, there are numerous other examples whereby the tax coding may be spot on for one type of purchaser but off point for another. For these reasons, it’s best to periodically review BOTH the answers being brought back from your tax technology and how those answers have been mapped to the particular products and services being procured. Failure to do so could result in significant tax over-payments and/or audit deficiencies.
