Case Study:
Creating a Powerful Income Tax Process –
How Integrating Asset Systems Will Help
Presented by:
June 2008
Introductions
Susan Rich
Manager, Income Taxes, Pitney Bowes
Kelley Lear
Managing Director, Red Moon Solutions
Stephanie Malin
Product Line Leader, Vertex Inc.
2
Session Objectives
Current process and pains collecting, validating
and reconciling fixed asset data with respect to
the following areas:
–
–
–
–
Domestic compliance
State tax compliance
Property tax
Audit response (e.g., RARs, Unclaimed Property)
ROI Considerations for Fixed Asset Automation
Discuss the integration Pitney Bowes will use
going forward to streamline their process and
automate using Red Moon Solutions® Fixed
Assets Manager™ and Vertex® Income Tax
Solutions - Domestic™
3
Who is Pitney Bowes?
World’s leading provider of mailstream solutions,
a global provider of hardware, software and
services that help its customers manage the flow
of information, mail, documents and packages.
2007 Revenue - $6.1 B
Global expansion
Since 2000, Pitney Bowes has invested $2.5
billion in 85 acquisitions
Evolving tax department
– Domestic and International
– Tax department personnel -
4
Who is Red Moon Solutions?
Specialty Tax Software & Services Provider
– FAM™
– LKEM™
– PowerOLAP®
Founded by Jim Shedivy
– Andersen Partner in charge of Tax Technology
Enterprises
– CIO for Andersen
– Headed up Milwaukee tax practice
From 7 – 20 Years Tax Technology Experience:
– Ex-Andersen & Accenture employees
– Senior personnel
5
Who is Vertex?
Income Tax Suite of Solutions
Domestic
Comprehensive family of products and services in
sales, consumer use, value added, and income tax
30 year history in global tax management solutions
Streamlined income tax compliance.
International
U.S. compliance for foreign operations.
Global Provision
Automated calculations and
scenario development.
Thousands of customers worldwide in all major
industries
Over 3,000 software implementations
Extensive ERP partnerships
Planning & Analysis
Calendar – Track obligation dates.
Custom Reporter – Generates
custom compliance reports.
Full range of Consulting and Data Management
Services
Consulting Services
Training, Integration,
Implementation
& Support Services
Corporate headquarters: Berwyn, PA
European headquarters: London, England
6
BEFORE: Fixed Asset Workflow
Various Accounting & FA
Sub-Systems
JD Edwards
Ex t
rac
XLS ts -
Tax
Initial Asset Entry
(Detail)
Provision.xls
Asset Data Files
(XLS)
Foreign
(Great Plains)
LS
Asset Additions &
Retirements
PeopleSoft
Asset Data Files
(XLS)
Vertex
Domestic Compliance
(Manual Input)
Quarterly
Provision
(XLS)
LMS
Property by State
(XLS)
Estimated
Payments
(XLS)
CORPTAX
International Compliance
(Manual Input)
Ex
tra
c
ts
-
XL
S
QAD
Manual
breakdown,
allocation and
manipulation
SAP
Book Type Setup
PTMS
Property Tax
7
Fixed Asset Challenges
Different fixed asset systems and many
acquisitions
–
–
–
–
–
–
–
SAP
JDE
PeopleSoft
QAD
Disposition tracking challenges
Summary asset information
Reconciliation
Domestic Compliance
– Manual data entry
– Time consuming – combining SAP & FAM data
– Extensive detailed review required
8
Other Tax Areas Affected
Property Tax
– Data Imports from SAP
– Some manual process for JDE and QAD entities
– By location – down to the street address
Audit Defense
– Current audit exposure – need detailed
depreciation by location for each asset
– Manually tracked in Excel
– Would like to show leadership tax savings through
audit defense efforts
– Trouble getting data out of their data warehouse
for tax compliance and audit defense
9
Fixed Asset Roadmap - Today
FUTURE
• Standardized on FAM for acquired companies
• FA data input/import for tax depreciation data
TODAY
• FAM generates 4562, 4797, 4684, 6254 and
input in summary into Vertex Domestic
10
Asset Management Challenges
Burdensome controls due to Manual Processes
–
–
–
–
Requires detailed reviews
Many manual controls
Extremely time consuming
Reconciliation
11
Potential Impact on Financial Statements
Incorrect profit & income tax
– Mismatch of depreciation between book and tax
• Continued depreciation on books for disposed assets
• Domino effect on deferred taxes
• Audit risk & credibility with auditors
Incorrect property tax
– Unrecorded asset detail for classifying property
Incorrect insurance costs and inadequate coverage
– Paying for disposed assets
– Missing new purchases
Poor purchasing decisions
– Duplicate assets acquired
Poor SOX compliance
– Inadequate controls and processes
12
Financial Example
Number of Assets
20,000
Average Cost per Asset
$1,500
Total Original Cost of Fixed Assets
$30,000,000
Total Cost of Assets Lost or Unaccounted
$4,500,000
Assumed Corporate Tax Rate
39%
Estimated Federal Income Tax
$514,800
1,320,000 X 39%
Potential Property Tax Overpayment
$103,950
3% of asset cost
Potential Insurance Overpayment
$33,000
$1 per $100 rate
Total Loss Per Year
$651,750
15% of total cost
13
Incorrect information and errors in fixed
asset inventory data are a near universal
problem – resulting in significant and
unnecessary tax overpayments of 8% to
20%
- Asset Management
Resource
(AMR)
Fixed Asset Roadmap - Future
TODAY
• Consolidate all acquisitions on FAM
• Import tax data
• Provision Data Integration
FUTURE
• Tax System Integration
• International data for 1118
15
AFTER:
Provision
Provision
TaxStream™
General
TaxStream™
Ledgers
Fixed Asset Workflow
Import
Book Data
FAM – Tax Depreciation
Calculations and Tracking
Future
Acquisitions
FAM™
ALL Filings –
Int’l Data–
4562, 4797,
4684 and 6254
1118
Generate & Integrate
Provision
TaxStream™
Vertex® Income
Tax Solutions–
Domestic
Compliance™
International
Compliance –
CORPTAX™
XML E-File
Aggregated File
16
Leverage, Expand, Improve, Support
Consolidate systems where possible
Streamline
–
–
–
–
–
Reconciliation and reporting
Property by location
Data integration
Workflow
Audit cycle
Integrate where it makes sense
Get Out of Your Comfort Zone – Minimize Excel
Use!
17
Streamline workflow
Reduce manual steps
Integration
– Automated process for moving FAM™ data into
Provision
– Automated process for moving GL data into FAM™
– Automated process for moving data from FAM into
Vertex® - Domestic ™
– Automated process for moving data to CORPTAX®
International Compliance™
Reconciliation reports
– Detail
– Summary
– Excel
18
Leverage Technology
Certified Development Partners
Form data exported from FAM™ and imported
into Vertex® Income Tax Solutions - Domestic™
–
–
–
–
Form 4562
Form 4797
Form 4684
Form 6252
1118 – International Compliance Data
Vertex® Income Tax Solutions - Domestic™ then
validates and creates all filings consolidated
within efile XML and transmits to IRS
19
1. Fixed asset data is brought into
Fixed Assets Manager
2. Fixed asset data is exported out of
Fixed Assets Manager
4. Tax forms are generated annually in
Vertex Domestic Compliance
3. Fixed asset data is imported into Vertex®
Income Tax Solutions - Domestic™
Integration Demonstration
Red Moon Fixed Assets Manager™ (FAM) to
Vertex® Income Tax Solutions - Domestic™
Simple export and import
Easy to do
Easy to learn
Data controls….
21
Benefits & Value to the Tax Department
Flexibility
– Ability to react quickly to changing business needs
– React quickly to new acquisitions
– Ability to work fast to supplant changing workforce
Time - $$$
– More tax team time to analyze and maximize tax
positions
– Increase cash flow
– Goal to reduce effective tax rate (resulting in
increased book income)
– More challenging work assignments
– Tax savings reports
– Better work-life balance
22
Evaluate Your Fixed Asset Process
Consider Regardless of Vendor:
– Accounting book to tax
– Tax depreciation book to provision
– Tax depreciation - domestic, international, and
state compliance
– Property tax
– Planning
– Audit response and defense
– Look at overall controls
Cost/Benefit
– Export/Import
– Tighter and more accurate integration
– Alternative reporting tools
23
Return on Investment - ROI
Please see ROI handout
Consider IT and tax team time to extract data
from accounting or other systems
Consider tax team time to reconcile data
Consider points of re-keying – time and potential
error rates
Consider downstream tax effects – across all
areas
Consider audit risk
Consider over and under payment of property
tax and insurance
24
Thank you for joining us today
If you have additional questions or for more information, contact us at:
Susan Rich
203-351-7653
susan.rich@pb.com
Stephanie Malin
Kelley Lear
(484) 595-6128
(941)379-7108
stephanie.malin@vertexinc.com
kelley.lear@redmoonsolutions.com