Though not the most popular or efficient task, calculating accurate taxes is a legal imperative in procurement. Transactional taxes (sales, use, VAT) vary by city, county, state, and country. Meanwhile, other factors must also be taken into account, such as the type of product or service, its point of origin and destination, characteristics of the supplier, and any special rules or exemptions that may apply. 

A Complex Tax Landscape 

Even for the most advanced procurement platforms, like Coupa, assigning and calculating the right tax code can still be challenging and time-consuming without the proper oversight and technology capabilities. 

For example, Coupa has the ability to apply different tax rates to any kind of purchase, but if faulty tax determination logic is entered into the platform, inaccuracies can occur. Typically, when an invoice is submitted for payment, the supplier includes the tax – but did they enter it correctly? Coupa may accept the tax amount at face value and process the invoice for payment. 

Additionally, when considering that VAT taxes in some countries are higher than 25%, it can be easy for companies to unknowingly overpay taxes, leaving a lot of money on the table. Conversely, underpaying taxes results in noncompliance with regulatory authorities and potential audits and fines. 

In the U.S. alone, there are more than 12,000 sales tax jurisdictions, with states like New York, California, Georgia, Illinois, and Washington known for aggressively pursuing and prosecuting tax evasion. Knowing all of the above, how confident are you in your compliance strategy? 

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Simply paying the taxes on suppliers’ invoices will not keep you in full compliance. It’s the responsibility of the supplier to collect taxes, but it’s your company’s legal responsibility to calculate the appropriate amount. 

Solving Tax Issues With a Powerful Coupa-Vertex Integration  

So, how does Coupa help solve the above tax issues and many more like them? 

Coupa users may leverage the intelligence behind tax engines such as Vertex to do the heavy lifting. As a leading tax engine provider and established Coupa partner, Vertex integrates with Coupa to help users achieve: 

  • Real-time tax calculations for purchase orders and invoices. 
  • Increased tax accuracy, leveraging up-to-date tax content for more than 17,000 global taxing jurisdictions. 
  • Reduced time and risk. 

“Our clients benefit from tax integration with Coupa in a few different ways,” noted Harpreet Narula, Partner at CrossCountry Consulting. “In addition to the benefit of compliance, we’re seeing a positive impact on financials and EBITDA given the common practice of overpaying tax. The fees to license with the tax provider and integrate with Coupa can quickly be recouped returning an ROI to the organization.”

Tax Engine Implementation Strategies 

Using a tax engine, there are essentially three different models to design the flow of your taxes: 

1. Tax Handled at ERP

Coupa will accept the taxes in the invoice at face value and send the information to the ERP. An integration between the ERP and the tax engine will then evaluate the invoice and recommend the appropriate tax code and amount.  

This model simplifies the implementation of the procurement platform, leaving additional layers of complexity to the ERP. If your company decides to replace its procurement platform, it may have little or no impact on the tax engine. In addition, the tax engine may already be integrated into the ERP on the sales side.  

The downside of this design is that accurate tax information may not be available on the procurement platform, only in the ERP. 

2. Tax Handled in Coupa at Invoice Entry

Coupa connects with the tax engine once it receives the invoice. The tax engine should be able to analyze the invoice and send back to Coupa the calculated tax based on the type of purchase derived from the Coupa commodity and destination of the goods or delivery location of the services, which is placed on a separate field, showing the Vertex/tax engine-expected tax amount. Coupa can use this calculated amount for payment and accounting, so all the information will be accurate and available in the procurement platform and in the ERP. 

3. Tax Estimated at Requisition or Purchase Order

The third model is less common. To accrue tax liability, a very small percentage of Coupa customers include taxes on requisitions and purchase orders. These are usually estimates, and it’s not uncommon for the estimates to differ from the taxes in the invoices.  

With the above advantages in mind, companies implementing Coupa should consider the use of a tax engine to minimize their financial risk and improve their operations, among other key benefits. For more information about tax engines, contact Vertex. To ensure your Coupa-tax engine integration is explicitly designed to your unique needs, contact CrossCountry Consulting.