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Many finance professionals mistakenly believe that using a third-party tax engine is the only way of managing tax in complex regimes such as the US, but we think many Oracle users will find a viable alternative within their ERP’s native functionality.

‘How can my ERP correctly determine and calculate taxes when three houses in one street can be liable for three entirely separate duties?’

But it can. Or, more specifically, Oracle eBTax can. It boasts immense functionality and power that, when harnessed and configured specifically for your business, can successfully automate tax in the US – or any other country in the world for that matter.

Don’t get me wrong, modern tax engines are phenomenal pieces of technology that deliver exceptional results. But they aren’t the only choice, even in difficult markets with seemingly endless nuances.

When it comes to weighing up whether Oracle eBTax can deliver the accuracy, efficiency and compliance across the US you require, I’d recommend looking at it from three perspectives:

1) Tax on sales
This comes down to what you are selling and to whom. Oracle eBTax with a rates file goes all the way down to ZIP code level, ensuring the relevant tax and rate is applied to transactions based on where they take place.

There are cases where a single ZIP code can cover multiple tax rates, but such scenarios are incredibly rare. In any case, we’ve created a rates file that allows a user to select the correct address for a customer, providing businesses with complete accuracy at a door-to-door level all the way from New York to Nevada.

You’ll also need to consider who you are selling to, i.e. residential, commercial or industrial. If your sales are predominantly B2C the likelihood that the location you are selling to has multiple rates is reduced because all commercial units in one ZIP code are likely to be in the same county.

Finally, what are you selling? Many of our clients sell either exclusively B2C and their customers have exemption certificates so no tax is required or they sell services, the majority of which are exempt in most states.

If the majority of what you sell does not require tax, why invest in and maintain an expensive tax engine when eBTax can be configured to do what you need?

2) Tax on purchases
One of the key differences for purchases is that sales tax is based on the customer location, so in AP we know all the locations and therefore the relevant tax rate. For example, if a business makes 100 sales to 100 different customers it may need 100 different rates. But if it makes 100 purchases from 100 different suppliers, they could all charge one rate.

There is also a requirement to determine Use tax in the US. This works in a similar way to the reverse charge mechanism for VAT where if a supplier does not have a tax registration in the state you are in (NEXUS), it doesn’t charge any tax and you (as the customer) are responsible for it.

3) Reporting
Oracle offers basic tax reporting for the US, but at Innovate we’ve developed an enhanced reporting solution that works just as effectively for the US as it does for VAT regimes in Europe. In short, you’ll have no reporting limitations if you opt to rely on eBTax for the US.

What about third-party tax engines?
Leading tax engines offer outstanding technology but this inevitably comes with a hefty price tag and potentially a lengthy wait for implementation.

The key to third-party tax engines is how the data is mapped to the tax engine from the source systems; and we have seen this done very badly, resulting in lots of issues around the tax which can be avoided with proper planning.

Even after you have mapped your purchasing categories and sales items, for example, you still need to know when a new tax category comes into play or when to introduce a new service.

The tax engine will keep those items updated so if Widget X is exempt and then becomes taxable in California the tax engine will manage this.

But if California subdivides Widget X so now it has three sub-divisions of ‘Widget X – canned’, ‘Widget X – bespoke’ and ‘Widget X – hosted’, with all exempt except for the bespoke version you still have to update your system to check if these changes apply to you, decide if new purchasing or sales item categories is now required and remap these items.

The only answer to Oracle Cloud v third-party tax engines is… there is no answer! It depends entirely on the stature of your business, the industry you’re in, the type of sales and purchases you make and where your customers and suppliers are based.


About the Author
With more than 20 years’ experience in large global ERP implementations, Andrew is one of the world’s premier tax technology specialists and internationally recognized as the best in his field. Prior to founding Innovate Tax, Andrew worked as a Technical Tax Consultant for dozens of multinational companies. Innovate Tax has extensive experience over the last 10 years of implementing out-of-the-box solution for Oracle Cloud and of overseeing tax engine implementations for global clients.