In this issue’s Tax Tech Corner, senior editor Michael Levin-Epstein interviews Ewa Cater, ADP’s tax and technology director. For the last fourteen years, Cater has worked with tax credits and business incentives and figured out how to close the gaps between better tax tools and technologies and tax operations. She started working toward developing different tools to scale the processes and provide assistance to ADP clients and internal groups, focusing on developing industry-specific technology solutions for tax credits and incentive management.
Michael Levin-Epstein: How can technology be applied to tax credits and incentives?
Ewa Cater: First, I think it’s worth highlighting that there are thousands of state and federal tax credits and incentives out there that offer significant opportunities for companies to reduce tax liability, lower effective tax rate, or reduce tax expense. Not to mention the above-the-line opportunities, which basically translate into cash. But they are complex; they require a lot of time to manage, and they require a specific expertise to identify and then also make sure that the companies are taking advantage of them. What we found is that a central and secure incentive management platform would offer structure, transparency, and collaboration, which a lot of times is lacking when we’re talking about incentives. The platform would be designed specifically for tax credits and incentives so that you know the incentives that are in your portfolio and you understand the compliance obligations. In real time, you would have access to the inventory of incentives programs that your company’s participating in, including the value, how much they’re worth. The length and the frequency of all reporting requirements tied to these incentive agreements would be clearly laid out, along with critical filing deadlines. Also, there’s a lot of information that needs to be gathered in order to evaluate these incentives. The information needs and data that is needed to generate reports to qualify for these incentives would be identified within that platform. And finally all of the stakeholders within the tax department and outside would have real-time access to the compliance calendar for the entire portfolio and receive regular updates.
Technology and Tax Incentives
Levin-Epstein: Those sound like very useful features to have. Are there any other features that you want to mention that would assist taxpayers in deciding how to implement incentive management solutions?
Cater: Yes. For the solution to be effective, it should have a strong tracking and compliance feature to start with. So, let’s say the landing page would offer a quick benefit portfolio insight into the status of each active incentive, either statutory or discretionary. For example, are there any actions you need to take or any potential risks [to address]? Today, we see that a lot of companies are still using Excel spreadsheets. Instead of scrolling through long lists of items on your Excel spreadsheet, the portfolio health indicator would strategically guide you to the key priorities. Then we want to look at templatizing those incentives. There should be a library of incentive templates ensuring consistency and eliminating the time that it would take the practitioner to identify the critical tasks and milestones each time they have to schedule the annual or quarterly compliance. As I mentioned, in most cases there are other groups engaged in pursuing or actually evaluating incentives, so this would offer the practitioner the option to assign these tasks to others involved and monitor their progress. They would be notified in advance about the request. The system should provide you with notifications of upcoming milestones and deadlines that could also be synced with your personal calendar. Then you can easily monitor what is coming up in the next thirty, sixty, ninety days and beyond.
We also want to see a centralized document repository, where you can store relevant documents for each incentive and filing period. Today you might see those documents on somebody’s desktop, maybe on common drives; they might be scattered all over the place. This would help you retrieve the information should the incentive be audited. Speaking of audits, each incentive should have a space where the practitioner can document any assumptions or methodologies applied when evaluating it. A notes section, for example, with an ability to include others in the conversation as an FYI or requesting an approval or a review. And finally, reporting. At the end we want to have real-time reporting, performance dashboards, something that can also be distributed on a regular basis, so let’s say you could have an executive dashboard that can be scheduled to be delivered to your executive team on a regular basis.
Levin-Epstein: Would this also apply to organizations with multimillion-dollar incentive portfolios?
Cater: Yes, absolutely. What I just outlined are basic features of compliance management. But for those with more complex portfolios, we would like to see additional components. The solution should be flexible enough to accommodate any size of portfolio. We see more complexity with discretionary benefits. The critical path to capturing these savings is to understand the strategic objective of the organization way in advance. Here we would want to have access to a project collaboration space within the platform, where we could bring all the stakeholders into the opportunity analysis and strategy development process. Getting these relevant functional groups within the organization discussing incentives is really critical. A central platform would also give access to collective knowledge and expertise for similar projects, so that we can avoid any missteps from the past. We want the solution to have performance-monitoring features, as most of the discretionary incentives are dependent on meeting certain commitments, such as job creation, new investment, or average wage. The system should monitor these commitments and issue alerts indicating upcoming risks in meeting these goals so they can be addressed, avoiding losing the incentives or paying a penalty. And on the flip side, exceeding commitments could lead to more benefits, so we should see an alert about that as well. The discretionary incentives can span across multiple years, anywhere from three to twenty years. Having all of that information in one centralized platform with easy access would ensure continuity if the original owner of that project transitions to another role or leaves the company.
Obstacles to Implementation
Levin-Epstein: What stops companies from implementing incentive management technologies?
Cater: In simple terms, the transition from a known tool, such as Excel, that everybody’s using today to a robust platform may seem scary, which is why, when considering the switch, companies should look to a solution that is designed specifically for tax credits and business incentives management. It will have the components familiar to the practitioner. For example, when looking at a demo presentation, you should be able to quickly identify its features and how they would apply to current day-to-day activities and needs. Most platforms out there have a feature that allows you to transfer your data from your legacy tool so that you won’t lose anything and can pick up where you left off with the added benefits that I already mentioned. Change management is critical. Both the executive and the operational teams should advocate for the switch, support it, and communicate it. If you select a platform that is intuitive, you will benefit from quick adoption by all stakeholders. I know this may sound too good to be true, but from my experience, the benefits of a tax credit and incentives management tool will outweigh any pain points you may experience during the transition period.