Tax Matters Podcast: How to Optimize Tax Technology Investments

Vertex Tax Matters podcast covers the latest issues, developments, and analyses of global tax trends and technology.

Episode Overview

In this episode of Tax Matters, business writer Eric Krell interviews Vertex Chief Tax Officer, Transaction Tax, Michael Bernard. Mike discusses the technology capabilities, skills and playbook tax functions need to thrive today.

Tax Matters Podcast



Welcome! I’m Tricia Schafer-Petrecz, Public Relations and Social Media Lead at Vertex, and you’re listening to Tax Matters, a Vertex podcast.

In this episode, business writer Eric Krell catches up with Vertex Chief Tax Officer, Transaction Tax, Michael Bernard. The conversation starts with Mike’s assessment of how tax departments have managed the transition to remote work during COVID-19. Tax groups that handled the shift most effectively had their technology tools and skills in order prior to the global pandemic.

Mike then discusses the hallmarks of a technologically advanced tax function. These capabilities include a tax technology playbook, an understanding of the specific technology skills tax leaders need to hire, and key collaborations with other parts of the business. Mike concludes the discussion by describing how tax leaders can optimize their tax technology investments.

Now, I’ll turn it over to Eric and Mike…

Eric Krell: Mike, a couple of years ago you described the challenge current tax leaders face in making their departments more technologically savvy. Since then, a global pandemic struck, sparking the largest shift to remote working models that’s ever occurred. As a result, all areas of the organization now need to be technologically savvy enough to operate virtually. How have tax functions managed the transition to remote work?

Michael Bernard: I think what we saw in our customer base is that about 40% of them were already digital before the pandemic hit. In other words, they already had a digital office capability. What we mean by that is that they were able to work from home. They had the hardware, they had VPNs, they had security that allowed them to tap into their key systems at work, and they were networked well. A lot of the data that they used for their compliance function was actually stored in a network situation along with their planning memos, along with other things that they were actually working on. They were able to access all of those things from home. The other 60% of companies had some portion of those capabilities, but not all of them. We’ve seen a lot of those tax departments try to move to a more digital model. The things that they’ve tried to add relate what they normally do in the compliance function. What they’ve ended up doing is having service providers take on their returns or they’ve upgraded their software and services to meet their compliance needs in the current environment.

Eric Krell: One point you emphasize is that the set of skills and capabilities that current tax leaders needed to reach the leadership ranks are now incomplete. Before we get to what’s missing, briefly highlight what those traditional tax leadership competencies include… Michael Bernard: For the past 15 to 20 years, most tax leaders were, first and foremost, technically competent. They were lifelong learners who really enjoy tax. They worked well with the CFO, managed their staff proficiently and maintained strong relationships with other folks in their industry. Lastly, they needed to work well with the audit committee and external, or attest, auditors. All of those things were key. Some of those skill sets are technical, and many of those competencies require relationship-building skills, which they needed to demonstrate in order to get their jobs.

Eric Krell: Why are those tax leadership specifications incomplete today -- what’s missing from that list?

Michael Bernard: A key development occurred. Historically, tax leaders relied on IT to provide the information they needed to either do compliance or tax-planning or defense work. IT was their key business partner in terms of getting them the data they needed to perform all of the functions I mentioned. Today, however, IT groups are not able to do that kind of work anymore. They’re busy providing other higher-value services, such as improving sales systems, operation systems or manufacturing systems. All of the activities that deal with tracking down data, particularly in the finance area, IT has handed off responsibility to finance functions and tax departments. Today, all of the information that tax departments rely on is sitting somewhere in the tax department -- but that data needs to be accessed with proper tools. So, tax leaders need to understand that they’re now in command of their data, and that they actually have to recruit, hire and retain people who are well-versed in the tools that manage their data. Current tax leaders should have some level of understanding of what that data is, what some of the tools are, and who they need to hire to use the tools and data to perform planning and compliance along with any controversy-related work that arises.

Eric Krell: Tell me about some of the trends and pressures driving the need for more technologically advanced tax functions.

Michael Bernard: All of this starts at the top of the organization. Most organizations have a set of corporate goals and finance governance goals. To achieve those goals, all work in the tax compliance area has to be completed on a timely and accurate basis while limiting any related risks. Doing that requires access to the data, which we just talked about. You also need tools that can access that data. Where I’ve really seen a stronger focus on the tax department originate from is the audit committee of the board of directors. Audit committees are expecting tax departments to work with the best tools available today. It’s also important to note that boards don’t always have a deep understanding of tax. They tend to understand other functions much better. Yet, boards want everything, including the tax department, to be de-risked as much as possible, so they expect tax to use leading tools.

Eric Krell: You’ve identified steps tax leaders should consider taking to add more technology talent and tools to their departments. One step is creating a tax technology playbook -- tell me about the playbook.

Michael Bernard: When I was in the industry, one of the first things I did when I asked to take over the tax-technology environment was to put together an assessment of where we thought we were with our entire systems and the data that feeds them. It’s an assessment of our current systems and the planning responsibilities and the compliance functions that we have. We used it to take a look at what systems are actually feeding everything that we need to do and where that information comes from, how clean that data is, and how quickly we access that data. The playbook also identifies what we’re doing well, and just as importantly, where we have some weaknesses. The playbook articulates a game plan for how we’re going to improve things based upon risk, materiality, funding and personnel. The one thing I would emphasize for tax departments is, you’re never going to able to truly move forward with a thoughtful technology plan until you put the playbook together. A good playbook provides a vision to both the IT group and the CFO as to where tax wants to go and how it will get there. Ultimately, tax wants to get to a place where it’s managing risk effectively, making compliance timelier and more accurate, and has a continual improvement process around the data and activities used to meet its regulatory obligations.

Eric Krell: Another step -- hiring more tax professionals with technology skills -- makes perfect sense but also raises questions. What type of technology skills? How deep should those skills be? Help me understand what tax technology skills look like.

Michael Bernard: If think back maybe 10 years ago to the example that I provided earlier, IT used to provide these services. Today, more folks are coming out of universities who really understand tax and technology. I’m not saying that you need to hire a coder, but incoming tax professionals should know what technology tools there are and the benefits the tools offer. They may understand something about dashboards, data-manipulation tools, and certain technologies that provide compliance solutions. A tax professional should be able to identify assess different vendors then ultimately select the best business tools for the environment while making sure that the tax department maintains a constant improvement plan around its technology.

Eric Krell: Partnering with leaders in other functions can also help enhance the tax function’s technology capabilities. Tell us about these collaborations.

Michael Bernard: The tax department is really there to do their regulatory work and planning, but they’re also responsible for helping the business. One area I’ll point to is the order-to-cash cycle. When an order comes in, that order is provisioned, it’s sold, it goes through a database, and then it ultimately converts to cash before the process starts all over again. The tax department has to be able to help produce a correct invoice where that product or that service is rated properly for transaction tax purposes, or possibly exempted for relevant reasons. Today, we’re seeing that the business owns the sales cycle, and they own the sales systems that supports the sales cycle. I would encourage tax departments to make sure that they are tied in to these business groups, understand the sales cycle, and deliver a great experience around customer invoicing.

Eric Krell: What about internal audit -- how can tax functions benefit by strengthening their collaborations with internal auditors?

Michael Bernard: Historically, there was a view that internal audit would come in and write reports that might make business groups look unfavorable by pointing out all of the things that needed improvement. I looked at internal auditors as highly disciplined professionals with great vision into all of the other parts of the corporation. The function has a lot of really technically skilled people who can do a great job in providing an assessment of how the tax department is operating. I would use them to assess our systems and comment on them. I was always particularly interested in where they thought there were weaknesses around our processes. The great thing about internal audit is that if they identify things that need improvement, they have a direct line to the CFO and the audit committee, both of which can ensure that funding and personnel are allocated to improving those tax processes. Not only can internal auditors write a thoughtful report and identify a path forward, they also can help deliver funding and personnel. The other thing is that internal audit will always write a follow-up report around any process that required improvement, and that can be helpful as well.

Eric Krell: Finally, you cautioned tax leaders to take great care when investing in tax technology. What are some hallmarks of this careful approach?

Michael Bernard: First of all, always acquire technology that enables your business and tax function to excel. I see a lot of companies benchmark their tax technology capabilities against other companies in the industry or across industries. Make sure that the technology you buy actually works -- that it solves the problems your business faces. Second, always make sure that whatever that solution is, it’s highly integrated with current systems will work with future systems as well. Third, if you’re in the tax department, make sure you’re on a committee that is looking to change technology. Make sure you’re plugged into the controller, the IT function and anyone else involved in changing or upgrading systems. You should be highly aware of ERP systems, billing systems and sales systems. Lastly, always look to your technology partners that provide your tax and business applications. Have regular calls with them so that you can understand what emerging technologies are coming and being deployed. If you can do those things, I think you can really add some value in the tax technology space.

Eric Krell: Thanks very much, Mike. Thoughtful insights, as always. I look forward to reconnecting soon.

Michael Bernard: Thank you, Eric.

Tricia Schafer-Petrecz: Thanks for listening to Tax Matters, a Vertex podcast. Check back here for more episodes soon

Note: This interview has been edited for clarity.

Featured Speaker

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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