Large corporations with operations spanning multiple jurisdictions face the challenge of ensuring tax compliance in each jurisdiction; often because there is a lot of information to review, and it’s challenging to keep track of the numerous and constantly changing tax legislations. Delegating tax follow-up and compliance to employees may help to an extent, but it also allows room for costly human errors like missing important clauses, forgetting to file taxes, or even a failure to understand complex tax rules. Therefore, to avoid penalties for non-compliance, companies adopt legislative tracking tools to stay on top of their tax obligations with accuracy and efficiency. To understand the critical role tracking tools play in businesses, let’s explore how the tools are used to enhance tax compliance.
How Legislative Tracking Tools Enhance Tax Compliance Planning
Legislative tracking tools ensure that no tax obligation is overlooked. Here’s how they do it:
1. They monitor tax legislation in real time
The tracking tools continuously monitor tax laws and regulations as they are enacted in the jurisdictions where you operate. They notify the business of proposed, pending, and passed taxation bills that affect taxation as they happen. With the new information, business owners can be proactive in planning their compliance by preparing the required documentation and paying taxes as required.
2. They analyze the impact that taxation laws will have on the business
As tracking tools fish out relevant tax legislation, they also assess the impact that pending bills will have on the business. They assess the amount of tax the company owes under new legislation, and whether it’s eligible for tax credits and deductions that could lower operational costs. The trackers also determine the tax documentation required, as well as when the right time is to fulfill the tax obligation. As such, tracking tools provide clarity on the expected impact of tax laws, allowing businesses to position themselves to plan their finances and budgets more effectively for better tax compliance.
3. They support decision-making when deliberating about jurisdictions to set up shop
Different jurisdictions have varying taxation terms and requirements for businesses, which they offer as incentives to encourage investors, while also serving as a means of collecting revenue. On the other hand, businesses set up shop in particular locations based on how friendly the taxation system is, among other regulatory requirements. However, political regimes change and amend taxation policies; operational costs for a business may change. For example, if a new regime decides to raise state taxes, the cost of doing business in that specific state increases, which drives business owners to reevaluate their profits against costs to assess the prospects of operating the business successfully in that state. Having a tax tracking system enables businesses to promptly reevaluate their activities in their locations, and make decisions accordingly, whether to increase their presence in that location or completely shut down.
4. They enhance tax compliance in all business functions
Tax technology can also be integrated into the business system as part of the overall business strategy. In this setup, taxation tools are factored into every transaction to keep a real-time account of the taxes owed. It helps minimize errors and omissions when calculating the taxes due. In doing so, it’s easier to determine when the company has reached its sales tax nexus threshold and start paying the taxes due.
5. They provide insights into the potential impact of structural changes within the business
Besides monitoring transactions, tracking tools also help businesses stay tax compliant in their strategic planning. For example, during a merger or an acquisition, the tax element must be factored in. Since taxes influence the cost of operations, the business can assess the impact that structural changes will have on its profitability and determine whether to proceed with the change. As such, a full understanding of the tax implications of major changes helps businesses determine whether to proceed with them or not.
6. They allow better management of tax documentation
When filing taxes, a business must provide all relevant documentation without omitting or misfiling any of it. Auditors and regulatory authorities also demand proper documentation when reviewing a company’s tax compliance. It helps to have a digital tracking system that keeps your business documentation safe and arranged sequentially for easy tracking and follow-up of the taxation history, to avoid penalties for misfiled or misplaced documents, since they are also considered non-compliant.
7. They foster greater participation in advocacy regarding policies that influence tax outcomes
Legislative tracking tools assess the potential impact legislation will have on a business early on— before bills are enacted into law. Suppose the anticipated changes will harm the company. Since the owners will know of it early, they’ll have the opportunity to engage with lawmakers early on to deliberate on the negative expected impact of the proposed bills and suggest alternatives that champion their interests. Therefore, with prior information, businesses can campaign for a supportive and business-friendly legal environment.
8. Taxation Automation Software Works are a Must-Have for Businesses
Legislative tax tracking tools help with tax planning and compliance by keeping the owners informed about tax laws and their requirements in the areas they operate. Businesses get to keep their tax information safe and retrievable whenever needed. They also have help assessing the risks and opportunities in different jurisdictions, which helps them determine whether to expand or cut off operations. As such, legislative tracking tools are a must-have for businesses seeking to streamline their growth and enhance tax compliance.
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Jordan McDowell
Writer & Content Strategist
Philadelphia, PA