Automating indirect state and local tax compliance process

By Josh Din, CPA, St. George, Utah

Editor: Mark Heroux, J.D.

With continuous change in global business environments and ever-evolving global tax regulations, tax departments are asked to do more with less and comply with new reporting requirements employing older bolt-on solutions and spreadsheets that manually aggregate data to facilitate calculations.

Indirect tax departments are prime examples of how data is pulled from various sources to feed downstream tax applications, revealing trends, patterns, and associations in the data that affect the tax function within an organization. As a result, indirect tax departments spend more than 80% of their time performing low-value and repetitive tasks to comply with their monthly filing requirements and fall short of analyzing data, which leads to a higher risk of penalties in the future. There are many hurdles in blending unstructured data from various sources in spreadsheets and getting that data into a standardized format to feed into downstream tax applications to complete monthly compliance obligations.

This is where the concept of tax data automation comes into play, by using extract, transform, and load (ETL) tools available within organizations to provide governance and control, risk management, process improvement, transparency, and adaptability to continuously evolving regulatory requirements. In addition, this can enable organizations to do data analytics in the back end to drive insights and identify anomalies that can significantly affect their operations.

To reap the benefits of automating processes that are managed manually, companies should design and adopt a well-organized systematic approach that can identify candidates ripe for automation to streamline the indirect compliance process with configurable tools along with powerful data reconciliation, adjustment, and reporting capabilities. This approach recognizes all the monthly reporting and compliance requirements related to indirect taxes and consists of the following steps:

Identify automation candidates: Companies should start by thoroughly assessing the current process and identifying calculations that recur versus one-offs, bifurcating source data to identify whether it is structured or unstructured, and capturing all the calculation requirements to determine whether they are objective or subjective. Calculations that are recurring, use structured data from source systems, and apply objective calculation logic are prime candidates for transformation.

Gather data requirements: This next step comprises identifying the data needs, formats, and sources to which automation logics are applied. This also includes validating the data requirements and defining the outputs to ensure business needs and expectations are met from a completeness and accuracy perspective.

Design and build: This phase consists of designing the end-to-end process based on the business and data requirements gathered, to ensure all the elements are incorporated to deal with inefficiencies in the current process. In addition, this phase defines the process to pull data from source systems, eliminate any duplication of tasks in the current process, manipulate data for analysis, and define the output results. It is critical to take the time needed to design the steps related to the "future state" before building automation to address the pain points and gaps in the current process.

Test and deploy: It is critical to test the future state with prior-period data to identify any gaps in the current design before going live with the automated solution. This step not only helps identify any gaps in the future design but also helps prevent any past errors from happening again.

Making use of the right tools

Every tax department is different and faces unique challenges regarding data processing to applying new rules and regulations. Accelerators have been developed to help tax departments adopt tools that are already available to help drive additional insight from data to support timely and informed decisions.


Mark Heroux, J.D., is a tax principal in the Tax Advocacy and Controversy Services practice at Baker Tilly US, LLP in Chicago.

For additional information about these items, contact Mr. Heroux at 312-729-8005 or

Unless otherwise noted, contributors are members of or associated with Baker Tilly US, LLP.

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