Optimizing Your Tax and IT Stack
Tax technology road maps should address stakeholder relationships, tax talent, and risk management

Tax leaders, tax technologists, chief financial officers (CFOs), and chief information officers (CIOs) often ask, How should we upgrade our tax technology? Our response may sound surprising, given that our company is in the business of selling tax software services, but here it is: You will always be in a constantly improving state of flux, but your goal is to complete tax and IT projects on time, within scope, and on budget.

To be clear, we strongly believe in the value of a top-notch user experience and a tax automation platform that provides end-to-end compliance support. We also believe it helps to assess the bigger picture before zeroing in on a solution’s features and functionality. That’s because tax’s footprint is much larger than many tax stakeholders realize. We mean that an organization’s tax compliance and planning capabilities have implications for the CFO’s governance model, enterprise risk management, and even the customer experience. (Make a large enough tax calculation error on purchases by a high-value customer, and you’ll quickly understand that link.)

Tax’s footprint is also more far-reaching than many tax people realize. The tax function—the complete collection of organizational processes that affect tax compliance—reaches into many parts of an organization, including areas beyond the direct control of the tax department. This explains why tax’s relationships with other groups—procurement, accounts payable, accounts receivable, IT, and more—are crucial to nurture.

Advanced tax automation plays a critical role in fortifying compliance, reducing operational costs, and increasing the tax group’s efficiency. Yet, making optimal decisions about tax automation investments requires tax leaders and managers to exercise skills and expertise not directly related to technology, such as diligent relationship-building, sound risk management, and sharp assessments of tax (and tax technologist) skill sets. This need is especially evident in enterprise resource planning (ERP) implementations, projects in which the tax group’s early and meaningful involvement helps drive efficiency gains and increases the return on investment.

For this reason, designing an effective tax technology playbook requires tax leaders to strengthen their influence throughout the organization, instill a “compliance-aware” mindset beyond the tax group, and get their tax talent management strategies in order.

Extending Tax’s Influence

In a recent McKinsey report on how rising finance leaders can ascend to the CFO seat, former finance chiefs describe what drives CFO success. “The CFO can’t just sit in their office anymore,” one former finance executive asserts. “They have to be able to coordinate across the business, across functions, and get people to collaborate.” The same holds for tax executives.¹

Although tax leaders have markedly different responsibilities and mandates from those of CFOs, many of the skills, collaborations, and activities that drive CFO performance also define successful tax leadership. The following steps can help tax leaders get out of their offices and instill tax compliance awareness throughout the organization:

• Differentiate the tax group from the tax function. The tax group consists of the head of tax, tax professionals, tax processes, tax automation, and tax data. The head of tax has direct control over those resources. But the tax group differs from the “tax function,” a term that describes all the people, decisions, processes, transactions, systems, and data involved in tax compliance and tax planning. Many of these resources—including ERP systems, accounts receivable managers, procurement platforms, supply chain management decisions, warehouse locations, e-commerce applications, and much more—exist outside the direct control of the chief tax officer. In other words, tax leaders are accountable but not directly responsible for substantial portions of the tax function.
• Approach cash management and risk management like a CFO. Most tax leaders report to a CFO, so it is important to understand the finance chief’s priorities and mindset. As stewards of financial performance, CFOs are laser-focused on cash flow management and investment opportunities. When tax leaders reduce the organization’s tax liability—by harnessing tax credits, proper reporting, incentives, and deductions—CFOs have larger cash reserves at their disposal. As the primary steward of risk management and governance, the CFO must ensure the company assumes a prudent level of risk. Since tax leaders manage tax liabilities and risks, they should assess both the impact and the likelihood of any given challenge. Framing risks along those dimensions helps tax leaders align and collaborate with their finance chiefs.
• Build collaborative relationships. One of the best ways for tax executives to amplify their influence is by working closely with other organizational leaders. Strategic planning sessions, scenario planning activities, and formal risk committees offer good opportunities to do so, and tax leaders should advocate to be part of these sessions and structures. The relationship with procurement groups is doubly important: purchasing activities have major implications for tax compliance, and procurement groups often act as the gatekeepers (with IT) for tax automation investments. Large, cross-functional initiatives such as ERP implementations and cloud migrations also provide collaboration opportunities. Tax leaders and managers can thrive by making the case for better tax automation options and demonstrating to colleagues in sales, procurement, and other parts of the company how their activities affect tax compliance. Additionally, tax leaders should cultivate healthy relationships with chief human resources officers and CIOs as well as with other groups (for example, supply chain, legal, and internal and attest audit). Strong relationships with IT leaders can help expedite the review process on future tax automation investments.

Catching—and Keeping—Unicorns

Advanced tax technology solutions need skilled tax experts to put them through their paces. At the same time, skilled tax technologists prefer working in tax groups with advanced tax automation solutions. This chicken-and-egg dynamic requires tax leaders to continually improve how they attract, develop, and retain top tax talent, especially those with machine learning, artificial intelligence (AI), and data analytics skills. Some of the best tax talent playbooks we’ve seen prioritize the following actions:

• Target tax technologists. In a talent-focused roundtable of tax leaders conducted by the Tax Executive Institute, a senior tax manager with Starbucks described the ideal tax professional as “a little bit of a unicorn role.” She emphasized that her tax group wants to hire tax professionals who are well-versed in “tax and finance and accounting and tech.” Some of the specific competencies tax leaders seek when hiring include curiosity, innovative thinking, a growth mindset, and maintaining up-to-date knowledge of evolving tax technology solutions and connected systems.²
• Cultivate inspirational leadership skills. One of the most effective ways for tax leaders to improve employee engagement is by distinguishing between authority and leadership. Authority relates to a position in the organizational hierarchy. Inspirational leadership is something that can be learned and developed at all skill levels, regardless of authority, as long as there is aptitude and desire. This type of leadership can generate tangible benefits, including higher employee engagement and productivity, lower turnover, less burnout, and more innovation.³
• Adapt to changing workplace and workforce dynamics. Organizations continue to adapt to pandemic-driven remote and hybrid working models as the workforce’s generational diversity evolves. Generation Z workers, those born between the mid-1990s and the early 2010s, are expected to become the largest generational segment in the workforce sometime this year, overtaking baby boomers. “Zoomers” generally have different motivations and priorities from boomers, Gen Xers, and millennials, according to Korn Ferry. Zoomers value purpose-driven work, corporate social responsibility, self-reliance, student loan repayment benefits, and opportunities to flex their entrepreneurial inclinations.⁴ Tax leaders can monitor changing employee preferences and address these expectations with nuance.

With their collaboration and talent-management activities in order, tax leaders can turn their attention to tax automation solutions.

Navigating the New Tax Technology Road Map

Advances in AI are driving substantial technology investments across organizations. Although tax leaders and tax technologists need to evaluate AI functionality in existing systems (and in new stand-alone tools), they should also look closely at other advanced technologies that enhance tax compliance and planning processes.

For example, robotic process automation (RPA), machine learning (ML), optical character recognition (OCR), and tax data analytics help indirect tax groups operate more efficiently, produce new insights via tax planning analytics, and reduce audit risks. Not surprisingly, forty-one percent of the 300 tax executives who participated in KPMG’s 2024 CTO Outlook Study deployed technology to free up their teams for strategic activities (up from thirty-two percent in 2023). Tax leaders also see a strong link between investments in new tax technology and talent management activities. When asked what talent-related actions they have performed in the past twenty-four months, tax leaders’ most common response was “adopting new technologies or tax software to enhance efficiency and productivity.”⁵

To make genuinely strategic tax technology investments, tax leaders should consider:

• Emphasizing quantitative and qualitative benefits in the business case. Many purchasing review processes are highly focused on quantitative criteria in recent years. For tax software investments, procurement groups want to see business cases with specific numbers related to decreases in tax audits, headcount reductions, and increases in the number of returns that are processed. Those metrics are important, but tax automation investments also yield qualitative benefits that can ultimately deliver an even greater payback to the bottom line. These benefits might stem from supporting sales in new geographies or leveraging tax optimization into increases to cash reserves. Tax groups should include qualitative benefits in their business case and help their procurement partners understand the potential magnitude of these improvements. Tax leaders should also recognize that procurement’s contract review process often takes longer than expected; initiate this work sooner rather than later.
• Advocating for tax. By now, most tax leaders recognize how important it is to participate in ERP implementations and ensure that their compliance and data needs are addressed in system configurations. By communicating compliance challenges and related needs to other project team members, tax leaders can shape the implementation in ways that improve tax compliance processes. This advocacy can result in substantial adjustments to implementation plans (for example, replacing the ERP system’s native tax functionality with a dedicated tax engine).
• Prioritizing tax compliance risks, then map those risks to tax automation. From a risk management standpoint (that is, likelihood and impact), what are the most urgent tax compliance and reporting challenges? Once those challenges are identified and listed in order of their severity, tax technology investments that address these risks can be prioritized. Tax leaders can maximize the return on tax automation investments by targeting areas where new solutions will have the greatest impact.
• Identifying tax-relevant data. New e-invoicing rules and related reporting changes require tax groups to access new data sources. ERP configurations can either help or hinder tax compliance. After identifying all of the finance and accounting data needed to address compliance requirements, tax groups should share those needs with their colleagues to ensure that future ERP implementations address all tax compliance requirements. That said, the tax group’s data-access and analysis needs extend beyond compliance. New analytical applications leverage tax data to generate insights into many other facets of tax management, including indirect tax collection trends, economic nexus status, audit risks, and reporting accuracy risks.
• Focusing on the solution’s interface, end-to-end support, scalability, and flexibility. Indirect tax rates and rules continually change, as do business strategies and priorities. A tax automation platform must support end-to-end compliance activities while smoothly scaling when organizations launch new products and services and/or enter new states, countries, and regions. The solution’s user experience is also critical to assess.
• Emphasizing ease of integration. Leading tax automation solutions seamlessly integrate with ERP systems, procurement platforms, and other transactional applications in ERP ecosystems and financial systems. The most effective integrations are standardized, and these connections help streamline the flow of data, minimize error risks, and reduce the need for manual interventions.

Tax leaders should consider treating tax automation investments as an opportunity to take a more expansive view of the factors that drive successful tax compliance and tax planning. By taking steps to instill a compliance-aware mindset throughout the organization, improve tax talent management, recalibrate tax technology road maps, and enhance their “IT cred” (via a track record of on-time, on-budget, and within-scope implementations), tax leaders will increase their odds of generating higher returns from tax automation investments.

Michael Bernard is chief tax officer at Vertex.

Endnotes

1. Ankur Agrawal, Christian Grube, Karolina Sauer-Sidor, and Andy West, “How to Prepare for the CFO Role,” McKinsey, April 1, 2024, www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/how-to-prepare-for-the-cfo-role.
2. “TEI Roundtable No. 45: The 2023 Survey of Chief Tax Officers,” Tax Executive, December 5, 2023, https://taxexecutive.org/tei-roundtable-no-45-the-2023-survey-of-chief-tax-officers/.
3. Larry Mellon, “Lead Your Tax Team With Inspiration (Not Authority),” Vertex, December 20, 2023, www.vertexinc.com/resources/resource-library/lead-your-tax-team-inspiration-not-authority.
4. “Gen Z in the Workplace,” Korn Ferry, n.d., www.kornferry.com/insights/featured-topics/future-of-work/gen-z-in-the-workplace.
5. 2024 Chief Tax Officer Outlook Study, “Tax Meets Tech to Meet Tomorrow,” KPMG, 2024, https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2024/kpmg-2024-cto-outlook-study.pdf.