Surmounting Lease Tax Compliance Challenges
Adopting innovative tax technology to improve business performance and mitigate risk.
February 26, 2009
The motor vehicle and equipment leasing industry has been growing at an exceptionally fast pace spurred by innovative program development, creative channel and distribution arrangements and a global economy. In addition, customer demand has caused banks, finance companies and captives to offer an ever-increasing array of financial products and services. As a result, leasing companies are requiring more flexible and robust systems to support large portfolios, an abundance of financing options and intricate contract management.
Survival for companies in this environment means operating smarter, faster and more efficiently. Profitability depends upon the introduction of new products and services. And the leaders are those getting their products to market faster. The accelerated pace of the leasing industry has in turn elevated the need for finance and IT departments to ensure data accuracy, consistency and availability.
It is important to have accurate and consistent data because financial data plays a pivotal role in leasing transactions from origination through servicing and reporting. More than just daily operational activities, data also impacts business strategy and clean, reliable data aids compliance.
In recent years, corporate mismanagement in the financial industry has led to increased regulatory mandates. These regulations, compounded by industry-specific lease tax nuances, have heightened scrutiny on compliance processes and have intensified pressure on the tax department.
With more than 7,000 tax jurisdictions in the U.S., making anywhere from 300 to 600 tax-rate changes in any given year, the task of accurate data management, the bedrock of all compliance activities, becomes mission critical. International companies juggle an even greater load with country-specific indirect taxes that are also updated frequently. Layer on changes in the application of very specific tax rules to these rate updates and managing data integration and data quality has never been more challenging.
Tax departments are often left to manage their audit exposure with legacy systems and inefficient, time-consuming processes that rely heavily on manual input. The inflexible nature of aging tools and manual processes make rules and logic updates difficult and the lack of standards embedded in the design of older systems makes integration with other systems — old and new — problematic. Manually applied rate updates are error-prone and Excel spreadsheets, once hailed as efficient and easy-to-use, are now inadequate for supporting complex operations and the demands of compliance reporting.
A 2007 study by Capgemini, in collaboration with the Equipment Leasing and Finance Association, notes, "The 'wait-and-see' era of technology investment is over. Half of the survey respondents indicate that the next 18 months will be a game-changing period ... enabled by technology." The study goes on to propose, "The catalysts for change include vendors making recent advancements in their solution offerings, coupled with companies that are increasingly tying IT initiatives to business strategies."
The motor vehicle and equipment-leasing industry requires the use of next-generation tax technology to support its burgeoning operations. Today's environment demands that companies do more with less, which means expansion does not always include an increase of internal resources. This is where improved solution offerings can yield cumulative results. And unlike the past, the technology demands of today's leasing company are more than just automation of manual processes. The new systems must help improve the overall business process and ensure compliance to help meet the growing demands of customers, stakeholders and regulatory authorities in an increasingly complex industry.
To read this article in entirety, which includes a leasing industry case study, an example of challenges facing the industry and information on tax technology and automation, visit: Adopting Innovative Tax Technology to Improve Business Performance and Mitigate Risk (PDF).
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Doug Cohen is Senior Channel Manager at Vertex Inc.