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.
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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:
- 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.
- 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.
- 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.
- 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.