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    The Compelling Case For Digital Tax Transformation (& How To Get Started)

    Posted by Carl Hoemke on Feb 7, 2020 12:28:55 PM

    The Compelling Case For Digital Tax Transformation (& How To Get Started)

    If you haven’t yet read about it on our blog, you’ve surely heard it elsewhere: Enterprises around the world are heavily investing in digital transformation tools and services. And it’s pretty clear their efforts are paying off—research shows that companies committed to digitizing (converting information and processes to digital) are growing faster and have higher net profits after two to three years compared to those who didn’t make a similar investment. No wonder nearly eight in 10 companies in the U.S. are currently in the process of a digital transformation.

    Unfortunately, the same can’t be said for most tax departments.

    An experienced tax professional myself, I’ve seen firsthand that technology has been slower to catch on in the industry, with many still wondering exactly how the digital transformation applies to their daily practice of tax administration. But as their peers in other departments have begun to adopt new technologies, more tax functions are finding themselves expected to do the same.

    So what is digital tax transformation, and what does it look like in practice? Here’s my take on what it means, why it’s worth the investment, and how you can get started in your department.

    What is digital tax transformation?

    The term “digital tax transformation” is still widely misunderstood, despite its pervasiveness. Most people are used to interacting online quickly and seamlessly with companies like Amazon and Apple; these business-customer relationships set the stage for “going digital.” But for most tax departments, customer-facing roles don’t exist, making it difficult to picture what digitization means for them. In addition, much of tax requires subject matter experts—trained, experienced people who bring their expertise to bear on a variety of tax issues. How can that be recreated by digital tools? The answer is, it can’t. But technology can be used in other ways that simply make the job easier, which is value enough.

    Automation tools are one type of advanced technology that are a perfect match for the manual, repetitive work that comprises so much of the tax function. (Tweet this!) Data entry, data verification, and report generation are all lower-level tasks that simply need to be completed before the real work of a skilled tax practitioner can begin. Most processes related to compliance, in fact, are ripe for automation, and can deliver benefits in spades. The idea of reducing human labor while at the same time transforming a business process for the better is why business leaders were attracted to automation from the start—and why many continue to view it as essential to organizational growth.

    Want to reduce the time your property tax team spends on compliance activities? Sign up for a demo of the most technologically advanced software on the market.

    At face value, digital transformation is about the integration of digital technology into business processes. But the “transformation” aspect really applies to more than just technology—it also applies to your way of thinking. A successful transformation requires a shift in the organization’s (or tax team’s) mindset, one where rethinking your business processes and searching for improvements becomes part of your daily practice, and a core value of the business. Technology applications are the tools of digital tax transformation, but without that culture shift, true transformation won’t ever take place. Thus, a more complete definition of digital tax transformation would be this:

    Digital tax transformation is the integration of digital technology into tax practice, fundamentally changing how tax teams operate and deliver value to their customers (organizations). It’s also a cultural change that requires teams to continually challenge the status quo, experiment, and get comfortable with failure.

    Making The Case For Digital Transformation

    Most tax departments are measured by two things:

    1. The organization’s tax liability (the success of your strategy and assurance that you’re paying fairly).
    2. Your department’s operating expenses (productivity and efficiency).

    Adopting the right digital tools impacts both areas positively:

    • Tax liability—If your tax department is understaffed and your focus is strictly on getting the work out the door, there’s no time for strategic thinking. With the compliance details taken care of automatically using software, your highly-paid, highly-skilled tax professionals will do exactly what they were trained to do—strategize around assessment reduction, find and address assessment errors, and identify valuation issues and implement solutions. Not only do these activities differentiate your team and give your organization a competitive advantage through smarter tax management, but they also help generate revenue. By ensuring you have proper assessments and are taking advantage of exemptions and discounts provided by law, your tax expenses decrease and have a direct impact on the bottom line.
    • Operating expenses—It’s typical for tax teams to take large amounts of data from their systems and put them in Excel spreadsheets to transform the data into a usable format for their purpose, whether reporting or analysis. These processes tend to be rebuilt every year from scratch. Think about what goes into that process—you’re manually creating and adding columns, graphics, and other elements every time, essentially redoing the work multiple times. When you use digital transformation tools like TotalPropertyTax (compliance and reporting) or Alteryx (Data Transformation–ETL– export, transport, load) the process is automated, so you no longer have to do these steps every time. All you have to do is focus on data input and output. Automation reduces the time you spend on returns—something that once took a week could now take just a day. With hundreds of returns, that’s a significant chunk of time.

    One more significant benefit of the digital tax transformation is the transfer of knowledge it enables. Many experienced tax professionals will be retiring in the years ahead; taking action to document their knowledge is crucial. Setting up workflows and processes digitally forces employees to document what they know, and saves the information for future use. (In contrast, it’s virtually impossible to figure out someone’s thought process in a complex Excel spreadsheet.) Plus, young talent from the large accounting firms expect to start their careers using technology; if you hope to compete for the best candidates, your own digital transformation needs to be well underway.

    Real-world Results Of A Digital Tax Transformation: Saving $6 Million In Tax Liability

    My own experience with digital tax transformation led to these actual results:

    Our tax team typically had four people work for one month every year to prepare the reporting database for property tax. We decided to implement data analytics software and built all our workflows for the database into it. After the implementation, we could do the exact same work with one person in less than a week.

    That implementation freed up three senior people with 20+ years of experience. Rather than having them build the database, they now had time to look at what the database was telling them—Were they missing any strategic opportunities? Having the ability to look at the data rather than just trying to meet compliance deadlines allowed them to gain insight, and develop a state-by-state strategy that led to millions in tax liability reduction.

    Getting Started With A Digital Tax Transformation

    There’s no defined path to digital tax transformation. In fact, the transformation process is different for every organization, and should be tailored to your business and its needs. Transformation efforts can be difficult to get off the ground, but there are certain things you can do to get the ball rolling.

    1. Understand your processes intimately. It’s important to have a deep familiarity with your current business processes so you understand what you’re doing and why. If you employ technology in an attempt to recreate a process your competitor uses, for example, you’ll inevitably fail. Why? Because you’re essentially trying to tie your processes to your technology rather than the other way around—a backwards way of looking at things that will make transformation more difficult. To avoid wasting money, know your own processes and figure out a way to streamline them, and follow that path instead. There’s no shortage of technology tools that can be applied in any number of situations, for numerous purposes.
    2. Test new technology tools in your own area of expertise first. In my case, I had a very supportive VP, but other tax departments weren’t embracing change as eagerly as I was. So I tested within my own department—property tax—first. Once I found a technology tool that would work for our purposes, my own team began developing a plan around its use. After we determined it would work, we kicked it up to another team to automate processes that affect our access to data. In talking through their processes we were able to automate the piece that affected us. Once the VP and other departments saw that our implementation was successful, he encouraged wider adoption and integration of technology across tax departments.
    3. Recruit tech enthusiasts to test new tools. I got multiple licenses for new technologies and chose one staffer from every department in the tax group to test out new digital processes. (In my experience, young staffers are most comfortable working with new technology and tend to be open to change, but that isn’t necessarily true across the board.) We had weekly meetings to discuss workflows and processes, and chose which ones were the best candidates for an overhaul. They then vetted the new tools and began implementing them into their projects. Over time they were able to demonstrate quantifiable time savings, which supported the case for even greater tech spending. And once the time and cost savings associated with their efforts became clear, this group (and others who jumped on the digital bandwagon) also reaped rewards with respect to bonuses and performance reviews.

    Be The Leader Of Your Tax Team’s Digital Transformation

    It took over a year to make the progress described above—digital tax transformation takes time, and should be a continuous process. Eventually, the culture of digital transformation cemented itself in the tax organization, a move that will almost certainly promote organizational growth in the future.

    To learn more about digital tax transformation and ways to get started at your organization, download our guide to Trends In Tax, or our whitepaper Change Management: 5 Requirements For A Successful Software Implementation.

    Download Now: Guide To A Successful Digital Transformation

    Topics: Tax technology, Tax automation, Digital transformation