Sales & Use Tax Compliance Engines:

While the end results of a compliance engine and a forms engine appear similar — both end up with a filled out form — a compliance engine works on several levels, with the filled out forms being just the end result.

Every accounting system has its own way of storing, interpreting, and using data. A compliance engine is set up to seamlessly integrate with a company’s existing system, no matter what its current workflow. For example, a compliance engine will calculate the business’ taxes based on the “gross up” scenario if that is how it has done so historically. Some sales tracking systems are only location based or ZIP-code based, which may or may not match the business’ work processes already in use. As with any type of program, to save time and effort, the software should be adaptable enough to work in the organization’s system, and not expect the existing system to adapt to the software.

If the company has been bought, sold or has purchased another company, it may be having even bigger accounting integration issues. Calculating business taxes due for multiple sites is not made any easier by lack of software compatibility. Fortunately, a compliance engine is usually versatile enough to collect and use data from disparate sources that are using different software packages.

Whatever the business’ starting configuration, the end result of a forms compliance system is really three layers of processing and tracking. It starts at the file level, dissecting a business’ current files to sort and store (what’s known as “bucketing”) the data in such a way that the form will understand the information provided. Then, given the business’ nexus and filing history, the compliance engine selects, calculates and places the information into the forms. With software at this level, individual variations and interpretations are taken into account as well as the rote information requested by the form.

Forms engines pick up and fill out forms, but they do not necessarily take into account or provide the forms’ context. A compliance engine, however, tracks the context as well as the content of each form and will not allow the accidental filing of a monthly form when a quarterly form is due. Many jurisdictions require filing of zero-dollar forms, and a business must file to show compliance, even if it hasn’t made any sales in that jurisdiction. A compliance engine treats a zero-dollar form with the same precision and priority as a million-dollar form, helping ensure both are completed and filed accurately.

Throughout that process, decisions that drive the calculations are being made on many levels. This is where a traceable audit trail becomes critically important. When an auditor looks at what the business filed and tries to reconcile it with the data, it should have a readily reproducible trail documenting how the data was used and how the forms and regulations have been interpreted for every decision that has been made. The better the integration of change analysis into the software, the more effective and efficient auditing from any number to any number can become.

Compliance technology should be designed to take into account the available transaction and calculation information, and the existing (and future) processes, as well as the forms, as diagrammed on page 70. When a business has software that works in the compliance zone overlap, then it has the audit trail of information. It can reconstruct any transaction to support the numbers on the forms. It has situs, nexus and all other transaction information to support any calculation. Any number on any form is no longer just a number — it’s a representation of a detailed account of the transaction.

When to choose a compliance engine instead of a forms library.
If a business’ needs are quite simple and straightforward, a simple forms library is probably sufficient. However, if the business has two or more of the circumstances below, a compliance engine is probably the safer choice: