LEASING TAX COMPLIANCE

Leasing Industry Challenges
Leasing companies remain a target of state policymakers as they seek to expand their revenue tax base. New government guidelines and requirements are forcing tax departments to spend an increasing amount of time and resources on administrative tasks to stay in compliance with official tax regulations. Meanwhile, corporate leadership is striving to effectively streamline their resources and optimize their back office in order to focus on their core business.

Challenges in optimizing the back office accounting process
Back office servicing, accounting and administration of lease portfolios are a difficult challenge for small and mid-size lessors. Unlike products in most industries, a lease transaction does not end with the sale. Once a lease is funded, accounting and tax departments begin to manage the lease for the term of the lease agreement. Yet lessors have significant challenges managing all the aspects of the servicing phase. During the critical servicing phase of the lease life cycle (see graph below), a leasing company’s top priority is lessee billing and collecting. This function is complex and delicate, demanding accurate invoicing from the start. Other functions include accounting entries, lease contract administration, and equipment location tracking.

Start with a Best-in-Class Tax Department
Of great concern to tax and accounting departments is the administrative effort required to properly manage state and local sales taxes. By their very nature, leasing firms become liable for sales taxes in a large number of state and local jurisdictions because of the distribution of assets in their portfolios. Unless equipment title has been explicitly transferred to the lessee, state and local taxing authorities usually hold the lessor, not the lessee, responsible for collecting and remitting sales taxes. Properly reporting and paying sales tax is crucial and many companies have experienced the costly implications of not being compliant.

A best-in-class tax department will have its people and resources focused against the tax determination, calculation and audit process … not to mention ensuring that other tax responsibilities that directly impact a lessor’s bottom line, like income taxes, are well managed.

Successfully managing the sales tax compliance process requires a unique blend of tax knowledge, data processing capability and process management. Many lessors struggle with this process because the data processing and process management core competencies required to effectively manage this process are not often found in accounting, or even tax departments. Software tools available to companies to support sales and use tax compliance are inadequate to address all dimensions of the process.

The Bottom Line for Lessors…a Best-in-Class Back Office Operation
Think about it. How many leasing companies are able to add value to their core competencies by performing administratively intense sales tax compliance? Sales tax compliance is not the core competence of any leasing company. All too often tax or accounting personnel spend a disproportionate share of their time, perhaps as much as 80%, focused on administrative tax compliance processes.

Outsourcing your tax compliance function can be a powerful solution. The skills and technological tools necessary to administer tax compliance for your lease portfolio become the responsibility of the outsourcing company. By shifting attention and investment away from the sales tax compliance process and toward value creating activities, tax and accounting department personnel can now focus on originations, credit approval, funding, document generation and the most critical servicing functions, leaving the service provider to focus on what they do best—administer your tax compliance.

The Tax Partners Managed Services Solution
Our Tax Compliance Service provides lessors with a worry-free, hands-off approach to the complicated, risky and costly process of sales & use tax compliance. Tax Partners Managed Services understands that tax returns are just one part of the sales tax compliance function. As the following diagram illustrates, we approach the process holistically, delivering excellence in each critical phase of the compliance cycle:

• Data Management
• Return Management
• Treasury & Payment Management
• Jurisdiction Management

Why Tax Partners Managed Services?
Companies like Ford Credit, HP Financial Services, Daimler Chrysler, Textron Financial, and NEC Financial have decided that outsourcing sales tax compliance to us makes sense. In doing so, they’ve tapped into our:
Flexible Data Management Model

• Process Integrity
• Integrated Cash Management
• Web Access to Sales Tax and Audit Information
• Experience and Expertise

At Tax Partners Managed Services, sales tax compliance is our core competence. Tax Partners Managed Services can help your company stay focused on what matters. That’s important in today’s competitive environment. Sales & use tax compliance will never be your company’s business … why would you focus your valuable people, IT budgets and recruiting function against it?

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SUCCESS STORY

Transforming the tax department from “tactical” to “strategic”
A major vehicle leasing firm identified an opportunity to optimize its internal resources….focusing their sales and use tax compliance operation away from inherently administrative work (tax rate research, and rate maintenance, tax calculation management, data consolidation, return preparation, copying, stuffing envelopes, applying postage, journal entry preparation, etc) and directing their efforts toward more strategic work. The leadership of their tax department was facing several issues that were undermining its effectiveness. Excessive time spent on administrative compliance tasks was depleting time for planning, tax minimization and risk reduction projects. Excessive manual intervention in the compliance process was increasing risk and hurting efficiency. Compliance systems were depleting scarce IT resources and budgets instead of enabling more tax data analysis and projects that strengthen the bottom line.

After analysis of its tax function and resource allocation, the firm chose to outsource sales & use tax compliance to Tax Partners Managed Services. Shifting the administrative compliance work to us has created capacity in the tax department for more planning, audit management and tax strategy. A cleaner, web accessible image library is making their audit management function more efficient and effective. Our web reporting and tax analysis tools enable better, faster decision making. Scarce IT resources are steered away from sales tax compliance, enabling more IT projects that more directly impact the bottom line. Tax Partners Managed Services has provided their tax department valuable peace of mind by significantly reducing the distraction of compliance. The team is now free to focus energies on projects more closely aligned with results oriented, bottom line work.

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