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    The Past, Present, & Future Of Tax Automation

    Posted by Carl Hoemke on Dec 9, 2020 3:30:00 PM

    The Past, Present, & Future Of Tax Automation - CrowdReason

    Cost reductions, efficiency gains, greater accuracy… these value propositions and more have long been drivers of change within organizations. From its earliest stages, automation has promised to deliver these 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. 

    The tax industry is no different. Many of our activities revolve around manual, repetitive work, such as data entry, data verification, and report generation—all lower-level tasks that simply need to be completed before the real work of a skilled tax practitioner can begin. In our view, these areas are ripe for tax automation, as are most processes related to compliance.

    This article examines where the tax industry is headed in terms of automation, and outlines some of the challenges we’re likely to face in the years ahead.

    Download this free guide to learn about three tax trends you should be watching this year—and how your team can get on board now.

    Tax Automation Past & Present

    Back in the day, tax practitioners relied on paper-based systems. Tax returns were filled out on typewriters, and white-out (remember that?) was used to make corrections.

    When computers became commonplace, these systems evolved to become a bit less manual and somewhat more computerized. First there were form-filling applications to make filing returns a bit easier. Eventually, that technology developed into software applications that could automatically populate forms once you began filling in the responses.

    Today, robotic process automation (RPA) is becoming more commonplace in tax practices. RPA is a type of software that can mimic physical activity tasks—essentially, any type of task that doesn’t require knowledge or human understanding. Manual, repetitive tasks such as data validation (like checking a list of fixed assets against the information in a general ledger) and data entry (inputting data into a tax return application) are a good fit for RPA. Computers can be programmed logically to handle perform actions like these because the progression of action is clear: If a particular condition or set of conditions exist, then the computer is directed to do something in response. RPA tools are often used in addition to existing desktop applications to make those applications work faster.

    Throughout all these stages, a significant degree of human intervention was necessary. People have always been required to make decisions that controlled a task, and play a supervisory role to oversee their performance and intervene if a process was not proceeding as expected.

    One of the goals of tax automation is to minimize dependence on humans to do repetitive tasks. Previous automation systems have been limited in their ability to achieve this goal, but technology advancements have made it increasingly possible for machines to perform some functions independently. An optimal human-autonomy balance is one where computational intelligence is capable of making more complex decisions—and humans intervene only when faced with a situation the software cannot handle.

    Smart Process Automation

    Smart process automation (SPA) is an advanced version of RPA sometimes referred to as RPA 2.0. It enables a smarter automated workflow than RPA thanks to machine learning. If RPA solutions can be characterized by “doing” tasks, machine learning solutions focus on “thinking and learning.” SPA solutions can “learn” how to perform a task by relying on patterns and inference. That means the computer can start to predict how a human might respond in certain instances, helping it to perform the activity with a greater degree of accuracy and speed. Categorizing data is one example of a task where machine learning comes in handy—it’s repetitive and time-consuming, but it also sometimes requires a degree of cognitive ability.

    Similarly, using SPA, tax forms can be automatically populated based on a set of rules and learned intelligence; the appropriate data can be automatically extracted from your database using RPA. With these technologies at work, little human intervention is required to fully complete a form.

    Today’s smart process automation tools are already bringing property tax professionals closer to the optimal human-autonomy balance, though there’s still more that can be done to realize the full benefits of automation.

    What will tax automation look like in the future?

    While some tax professionals are already using RPA and SPA tools for selective activities in the tax cycle, we believe that, in the future, the entire compliance process will be automated. That includes:

    • Extracting data from your systems (company systems, ERPs, fixed asset systems);
    • Transforming that data into a centralized application or domain-specific application;
    • Finding out what forms need to be filled out and completing them automatically;
    • Sending the appropriate forms to the relevant jurisdictions on time through mail automation (no physical documents necessary);
    • Comparing tax notices to returns to check for differences;
    • Alerting you to disparities on returns vs. forms and providing intelligence about them;
    • Communicating with jurisdictions about disparities;
    • Requesting appeals.

    What will humans do? With the compliance details taken care of automatically, 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—a revenue strategy that’s too often overlooked when tax teams are mired down in data, deadlines, and forms.

    What challenges are we facing in reaching that goal?

    There are four main challenges associated with making this vision a reality:

    1. Jurisdictions need to modernize their processes.
      They are heavily reliant on paper, sending assessments and tax bills through the mail. It’s expensive and inefficient. Technology funding seems to be an afterthought for most jurisdictions, and it is rarely prioritized over other expenditures. As long as jurisdictions continue sending tax information by mail, organizations will always have an extra step in the tax process—that of extracting the necessary data from documents. (There are tools you can use to manage this process now, however.) Sending out assessment information electronically would make it easier for businesses to integrate data directly into electronic databases.
    2. Organizations need to digitize, too.
      Only 38 percent of traditional enterprises have adopted a digital business strategy despite the fact that it would increase revenue by up to 23 percent. (Tweet this!) Most business leaders are well aware of the benefits (and the potential downsides to the business as a whole of not digitizing), but they are slow to put plans into action. The benefits from the initial decision to digitize will continue to expand throughout the lifetime of your tax practice; leveraging digital tools is the first step.  
    3. Standardization of tax documents is needed.
      Tax documentation is different across just about every jurisdiction. That makes it more difficult for organizations to extract and manage information across multiple locations. Standardization of tax documentation is necessary to streamline the process.
    4. There needs to be a standard means of recording digital transactions.
      Within the property tax industry there is little consensus on the best way to verify recorded information. Blockchain technology may be able to solve this problem by “locking down” data so that it can’t be tampered with. Widespread adoption of blockchain solutions is still a few years away, but the concept is moving closer to reality.

    How You Can Implement Tax Automation Today

    When it comes to digitization, businesses are moving faster than jurisdictions. Until jurisdictions begin sending out tax information electronically, the industry needs technologies to bridge the gap.

    CrowdReason property tax software applications, MetaTaskerPT and TotalPropertyTax (TPT), allow you to operate today as if jurisdictions were standardized.

    MetaTaskerPT automatically extracts and structures data from your incoming tax documents—so you don't need to wait until these standards are implemented across all jurisdictions. And it integrates with TPT, our sophisticated information management system, helping you to dramatically reduce the time your team spends on data entry and data management.

    You can implement these solutions today—without having to reinvent the way your team works. See below for a sneak peek of what MetaTaskerPT and TPT offer in terms of SPA.

    Extract Data

    Feed all your tax documents into MetaTaskerPT, and take advantage of its machine learning capabilities. It automatically converts document images into readable text and extracts strategic content. Combining established business rules and a taxing jurisdiction database, MetaTaskerPT analyzes and validates extracted data. For any documents requiring expert validation, you receive an error report and work queue.

    With TPT, you have the option of connecting your tax and accounts payable (AP) systems so data flows seamlessly between the two. Not only can your AP system be automatically populated with relevant data points, but your tax and AP teams can stay on the same page. (There are also data export options if you’d rather not connect your systems directly.)

    Find Tax Forms

    TPT identifies and retrieves the current standardized state and local forms. The forms are then made available in our system, and you decide which are the most appropriate for your specific tax situation.

    Compare Tax Notices

    TPT provides you with relevant data so you can make your own comparison between tax notices. For real property, you’ll receive your tax notice and see the value the assessor has assigned. In TPT, you can view the previous year’s value and quickly compare it to the current year’s (see screenshot below). This at-a-glance comparison is one way to determine whether the new value is acceptable, or if you should analyze the valuation difference further for an appeal or protest.

    Real property value - Tax automation - CrowdReason

    In the example shown above, the user received a notice that their real property is valued at just over $3.8 million. A quick review of last year’s value in TPT indicates this year’s value is 4.7% higher. Given the user’s tax situation and any relevant valuation changes that may have occurred since their last assessment, the user may or may not decide to appeal.

    Business personal property works differently. You submit your return, and then the assessor assigns a value based on that return. But the comparison process works similarly in TPT (see screenshots below).

    Single account highlight

    Single account highlight - Tax automation - CrowdReason

    Multiple account highlight

    Multiple account highlight - Tax automation - CrowdReason

    In the image above (multiple accounts), TPT shows that the user received a notice from the assessor that their personal property (PP) was valued at a total of $267,375 across all personal property accounts. This figure was significantly higher (94.93%) than the value stated on their return. There is a high likelihood, other factors withstanding, that this user would request work papers from the assessor to understand how the valuation was determined.

    Identify Disparities

    Tax time can be stressful for everyone on your team, and errors are bound to happen in one form or another. One of the most common errors is neglecting to enter required information on your tax form. TPT helps identify missing information before you submit your return. For example, if there’s a missing figure, TPT will let you know you haven’t mapped it to the appropriate form field.

    Confirm Depreciation Schedules

    Come tax time, each asset needs to have a depreciation schedule tied to it. For example, a wooden office desk depreciates at X amount according to jurisdiction Y. Searching for appropriate depreciation schedules can be incredibly time-consuming. TPT takes this task off your plate by automatically depreciating assets for you, resulting in less research time and effort for your team. It even updates the schedules automatically, so you always have the latest version. (There’s also the option of uploading your own deprecation schedule for special cases, such as wanting to depreciate a certain item more conservatively or liberally.)

    In the case of business PP, you’ll never forget to depreciate an asset because TPT alerts you to any missing depreciation schedules (see screenshot below). This applies to any asset you’ve indicated you’ll be filing a return for, and you won’t be able to move forward in the filing process until you rectify the discrepancy.

    Missing depreciation schedule alert - Tax automation - CrowdReason

    These are just a few of the ways CrowdReason’s automated tax services are moving businesses into the future of tax. To find out more about our next-generation tax automation solutions, visit our website or schedule a demo.

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    Topics: Tax automation