Getting to the Root of Tax Data Management

  • September 11, 2013

"When solving problems, dig at the roots instead of just hacking at the leaves."

The quote, attributed to education writer and innovator Anthony J. D'Angelo, is instructive for tax professionals grappling with data management challenges.

Vertex research, including the largest survey on data-related tax process issues conducted to date, indicates that improving cumbersome and time-consuming processes surrounding the management of tax data is widely viewed as the starting point for improving overall tax process efficiency, a precursor to tax department effectiveness.

That's the good news.

The bad news is that there is little agreement among tax professionals on exactly how to improve data management. In too many cases, tax departments find themselves hacking at the leaves – by adjusting tail-end processes like compliance and provision – rather than digging into the root cause of upstream data management challenges. This is like the tail wagging the dog – sure, results are achieved, but at onerous personal cost and with little progress against those “we never get to it” goals of repeatability, automation and control. In contrast, targeting the root causes involves converting data into an information format that tax professionals can trust, use and share in a consistent and efficient manner.

Unfortunately, this and the related root- cause driven approaches to tax data management problems often get lost in translation between tax professionals and technology professionals. My objective in this blog post is to help tax professionals translate thorny data-management and technology issues into actionable and more easily understandable terms for themselves and their IT counterparts.

I’m undertaking this mission, in part, because I’m a tech guy first and a tax guy second. As such, I understand how IT people and technologists think. We are much more process-oriented than results-oriented. That's why we address most problems by beginning with a root cause analysis and then progressing, in a highly logical fashion, through the rest of a process until we’ve sniffed out the bugs.

On the other hand, it’s not that tax people are not logical, illogical; they just come at it from a different results angle rather than a process angle. M - many tax people will tell you that tax data management boils down to a collection process: You track down the right information and you’re pretty much set. Tech people will tell you that this definition is incomplete. They will say that data collection represents only one step in a data-management lifecycle of connected and interdependent processes that include:

  • Collection, which involves gathering detailed enough, tax-sensitized if available, data from all locations and source systems then aggregating it; Validation, which ensures that data ties out to the consolidated financial statements so that Tax and Finance stay on the same page and tax results are accurate;
  • Storage and retrieval, which requires storing book and tax data, as well as the linkages in between, in one place for multiple years so that it’s auditable and easily accessible by those who need it when they need it; and
  • Preparation for use, which involves getting data into the format required by different systems and for different uses (i.e., standardize, map, and load) across provision, compliance, audit, planning and (tax) management reporting.

Tax data management, according to the surveyed tax professionals, is in need of significant improvement. In my next post, I will share how that need translates into real world goals that extend well beyond pruning the leaves.

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