Tax Determination

Earlier this month, FuelQuest hosted a webinar to discuss the advantages of automating motor fuel excise tax determination. An attendee asked that very question, ‘What is business agility’. It got me thinking this is more than a buzzword; this was about what that concept means for an organization that has to deal with motor fuels excise taxes in multiple states or jurisdictions. What happens when that business expands and moves into a new state and finds themselves on the hook for filing and reporting with different tax rates and rules?

One thing is certain; a business must be able to react quickly. In 2012 alone the U.S. had 522 motor fuel tax law changes, a whopping increase of 30.4% from the prior year! Keeping up with and staffing for this multitude of changes is no easy feat. Companies struggle to keep pace with these constant adjustments, spending precious IT and accounting department time and resources. In addition, managing these changes is often the least of their worries. Tax related errors and the activities associated with fixing them often pull high-value resources from various departments attempting to minimize customer facing and financial impacts.

In an effort to manage this process, many companies have developed in-house tax determination solutions. These organizations often find after the fact, these ‘home-grown’ solutions didn’t meet their requirements for business agility (or the ability to make changes as needs dictate, such as adding tax information for a new state), tax transparency (the ability to easily understand the tax calculation process), and accurate tax calculations. Of course, accuracy in these tax calculations is paramount as an incorrect calculation causes all kinds of problems, including the potential for fines.

What we are finding is many organizations are now realizing that to be agile they need to move to an automated tax solution for their tax calculation process. Making this move can be confusing and difficult especially when resources have been sunk into creating the existing system. Understanding the value of an automated solution and what it would mean to the organization is tough too, but luckily there are solutions in the market that can give companies that agility and peace of mind.

The Fueling Business tax determination webinar was a success based on the feedback FuelQuest received. We thank all those that were able to participate. However, I know there are other questions out there so I encourage you if you haven’t already, to view the recorded webinar and let us know if your business is one that desires business agility. For advance notification of upcoming webinars, drop us a quick note on our Contact Us page, or follow us on Twitter, Facebook or LinkedIn.

 

Yesterday, a number of FuelQuest and Zytax clients, prospects, and friends gave us an hour of their time to learn more about excise motor fuel tax determination and the options a company has when calculating fuel taxes. We were privileged to be joined by Oscar Garza, Director at Deloitte Tax LLP, who shared his insights on the market and the potential repercussions from inaccurate determination. Danny Norris, VP of Finance from MAPCO Express, provided a case study of what challenges MAPCO faced, what key points they considered, and why they went with an integrated tax solution in combination with their existing ERP system, SAP. Of course, FuelQuest’s own Bubba Lange, SVP of our Zytax product line, weighed in on best practices when selecting a tax determination system.

As the premier provider of excise motor fuel tax automation software, talking about system selection isn’t exactly a stretch – one that might be construed as self serving. And, I readily admit that it was. I am happy to note, however, that the Fueling Business webinar on tax determination delivered educationally.

For example, what is the difference in tax determination and compliance? In summary, compliance is a compilation of historical data that is categorized, taxed, and paid to a jurisdiction, whereas determination is real-time calculation of tax liability that is transactional and based on the parameters of a transaction, considering all requirements, exceptions, and exemptions. So, now I know what determination is. Now the question is: why do I care?

The answer is (surprisingly) I might not. If I am a small retailer that accepts only delivered pricing and have no plans for sizable growth, I may decide I have no needs for indirect tax determination. The complexity just isn’t there. As my business grows, and I diversify the ways I purchase fuel, the complexities – and risks - increase. Ah, there’s the rub. See the chart below.

COMPLEXITY VS. RISK

And, what are the risks? Well, as Oscar from Deloitte shared with us from Stephanie Bland’s API address, in Section 6675 alone, you can be fined $10,000 for late filing and an additional $10,000 for missing or incorrect information. Forget the fines - can your already thin fuel margins take a $10,000 to $20,000 hit?

Segue to Danny Norris, VP of Finance from MAPCO Express, who operationally serves 430+ locations, is a licensed distributor in seven states, passes title at the rack, and splash blends ethanol products – and more. On the chart above, MAPCO would be fairly complex. As he explored alternatives ranging from manually tracking taxes, a custom build, and a bolt-on solution, he took into consideration not only his business model and its scalability, but also resources and constraints. After reviewing his options (and even with an extensive IT support team), he elected to use a bolt-on solution realizing that having Zytax maintain rates, schedules, and rules would in the long-term allow his team (finance) and IT team members to focus on other projects. MAPCO yielded tighter controls and decreased risk for their business by leveraging a customized, bolt-on solution.

These are just the highlights of the webcast. If you are convinced you need to learn more, email me to request the recorded version at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Thanks once again to our attendees and presenters. For more information on the webinar or the Fueling Business webinar series, please email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

On February 14, the Daytona 500 will take place, and NASCAR will be starting a new season. At some point during the race, the caution flag will come out, and the pace car will jump on the track to slow everyone down to the same speed until all dangerous conditions can be removed from the track. When this happens, almost every single driver will take his car into the pits to get 4 new tires and to fill up with gas. They do this because they can go into the pits and not lose ground on the field. The cars that had the bad luck of just taking a pit stop under the green flag will stay on the track and not be able to take advantage of the caution flag pace. You’re probably wondering what that has to do with my CFO, CTO and tax manager, aren't you?

When the economy is running under the green flag, your company is doing everything it can to stay in the race. This includes trying to keep pace with the field. Your tax manager is running full speed to keep pace with you and to stay one lap ahead of the state and federal auditors. Their average month goes like this: 

1.  Work with accounting to close the month in the allotted time period.

2.  Gather transactional data to enable the creation of tax returns associated with sales and use and excise taxes.

3.  Scrub the data, fill in missing data, and create returns.

4.  Review the returns and file paper copies where allowed and electronic copies where mandated.

After returns are filed for all jurisdictions, the tax manager works with the AP team to reconcile the GL account accruals versus the actual amounts filed. Before they know it, the next accounting close is on top of them, and they have to start all over. This team does not have time to breathe, much less implement any new IT systems designed to automate this process which would lower the total cost of ownership.

Currently the economy is running under a caution flag, so now is the time to rev up your tax department by automating your tax determination and compliance processes. Why now you ask?

1. Tax and IT resources (internal and external) will have the most available time right now.

2. Software companies are also under the caution flag so pricing will never be better.

3. Your transaction volumes will never be lower so your team will be able to run parallel testing for 100% accuracy.

4. If your competition is doing it now, but you have to do it under a green flag, they will have a strategic advantage over you.

Start your engines. The race is on.