Fuel distributors are finding success through excise tax automation.
By John Beaty
There’s never a simple answer when it comes to calculating excise taxes, particularly in the secondary fuel distribution market. In the midst of an ever-changing landscape of tax laws that are complicated by differences between products, states and municipalities, it’s hard for tax managers to stay abreast of legislation. According to Avalara Excise, in the last two years alone, 77 percent of fuel excise tax rules have changed. Mix in route changes, fuel splits and diversions, and it’s fair to say that anyone would be overwhelmed.
To be successful, tax managers not only have to identify when there is a problem, they have to pay any associated penalties and interest, and put the right parameters in place to ensure that it doesn’t happen again – and today, this is typically done using manual processes. The danger lies in the fact that businesses are always playing catch up, and are unable to make strategic decisions around their finances. In addition, a seemingly small miscalculation can have dire consequences as a tax analyst struggles to stay abreast of current legislative requirements and complexities. This failure to look forward can have a major impact to their bottom lines.
In an industry that depends on volume for margins, even a percentage of a cent matters. To stay compliant, avoid unnecessary penalties, and still have the time to capitalize on growth opportunities in the secondary fuel market, distributors must shift gears and implement reliable tax automation technology and processes.
Reliable tax automation tools update automatically with legislative changes, alleviating the burden of tax managers to input every tiny excise tax modification. Technology that reflects these taxes across all government jurisdictions allows distributors to improve workflow processes, reduce risk of unforeseen liabilities and penalties, and decrease or eliminate overpayment to state agencies. With automation, no longer will a small legislative change or difference across a state or municipality be the difference between a beneficial new venture and a surprise tax bill.
For one company, that surprise tax bill came out of what appeared to be a good opportunity for its traders to sell ethanol across state lines.
Prices were better in Georgia, so, at least initially, it made sense. However, the traders did not realize that they had to be a licensed distributor to sell bulk fuel below the rack, and that the tax structure for licensed distributors was vastly different, resulting in an unforeseen tax liability.
If the carrier would have used a tax automation solution to validate the opportunity, they would have had access to up-to-date rules and regulations, allowing them to properly evaluate the opportunity from the beginning and mitigate any potential tax consequences.
Not only does tax automation help distributors to keep more of their money in the long run, they’ll spend less time chasing overpayments that can take many months to recoup. All in all, that adds up to a pretty big weighted cost of capital, which gives executives the power to make informed decisions about the company and expansion opportunities.
So, what can tax managers do with all this newly-acquired free time? When they’re not trying to grasp which tax changes happened over the course of a day, week or month or spend time chasing over payments, they can get strategic. As a strategic member of the operations team, the tax manager can provide advice to help mitigate risk and define certain requirements based upon proposed opportunities.
Not only will this minimize adverse tax treatments, in some cases, it will provide optimal outcomes. At a minimum, this proactive approach will provide the tax manager time to prepare required licensing and prevent potential fines, fees, and penalties.
Previously, the majority of tax managers simply didn’t have the time to step back and look at the data and make better decisions, and that’s because they were relying on manual spreadsheets and paper trails. With tax automation solutions, they now have the power to manage existing tax needs and stay on top of tax changes, bringing increased confidence in the accuracy of their work. In addition, with this newfound efficiency, tax managers can look towards the future to identify new opportunities in business and cement their value to the organization.
John Beaty is a results-oriented senior executive with more than 22 years of process technology consulting experience in the petroleum industry and 30 years of team development and organizational leadership. He currently serves as the general manager for Excise at Avalara. Avalara is a tax technology solution provider focusing on indirect tax determination and compliance with global capability. Avalara helps companies of all sizes achieve transactional tax accuracy for their indirect tax requirements.