Manufacturers Should Send Their Purchasers to Sales Tax Training Boot Camp
Last week I had the opportunity to speak with the Delaware chapter of the Institute of Supply Management (ISM)– a group that focuses on procurement issues for large corporations, including several Fortune 500 manufacturers in the northeast.
The topic I was speaking on was Sales Tax Training for the Non-Sales Tax Professional. We had some great discussions. What became clear to me is that no matter the size of the company, a use tax compliance process without heavy involvement from purchasing is asking for trouble.
One area that we discussed at length was: what can purchasing/procurement departments do to ensure good sales and use tax compliance? The answer…have a clear understanding of your role. We see the role of purchasing staff in one of two ways:
First, procurement/purchasing staff may be the tax decision makers. They understand what products are purchased. They understand how these products will be used in the manufacturing process. They have a thorough understanding of the tax laws applicable in their state. Then AP personnel serves as a check point or “enforcer” when invoices come in to ensure that tax is paid or not paid per the directives given by purchasers.
The other end of the spectrum is when tax automation drives the use tax compliance. Typically, only the largest manufacturers have a completely automated system. Tax is paid or not paid based on predetermined material groups, commodity codes, tax codes or pivotal pieces of data. The critical element here is that the purchaser must select the correct tax driver (material group, commodity code, etc.). If the tax codes are set up with the correct taxability, all is well.
What do these 2 processes have in common? A good process and good training. Without either, sales and use tax compliance will always be ripe for errors. Under the first scenario, it is imperative that purchasers have a very solid understanding of the minutiae details of tax laws and how they apply to their companies. As tax laws change, they need to be kept aware of those changes. And, if you have several purchasers involved, the training factor grows exponentially. Under the second scenario, when you start talking about tax automation, you are looking at a significant expenditure of investment. Without good processes of how material groups, etc. should be chosen, you get bad tax decisions. Garbage in, garbage out.
Think about how involved the Purchasing Department is at your company? Would they benefit from a better understanding of the big picture of sales and use taxes? Would that get them thinking of process improvements within your own organization?