27th Annual 

Tuesday & Wednesday, January 23‐24, 2018 Hya Regency Columbus, Columbus, Ohio

Oh

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ax

Workshop L

Advanced: Leveraging Technology & Data to

Improve Tax Compliance, Audit Defense & Produce

Significant Tax Savings

Tuesday, January 23, 2018 3:00 p.m. to 4:00 p.m.

Biographical Information

Kyle O. Sollie, Partner, Reed Smith LLP Three Logan Square, Suite 3100, 1717 Arch Street, Philadelphia, PA 19103

ksollie@reedsmith.com 215 851 8852

Kyle and his colleagues in Reed Smith's offices throughout the country use the right tools at the right time to help their clients pay no more state tax than legally due. Kyle's practice includes state tax return positions, audits, appeals, and litigation, focusing on Pennsylvania, New Jersey, Delaware, and California. Kyle is active with the Institute for Professionals in Taxation. He is a Certified Member of the Institute (CMI) for sales tax. To make sure Reed Smith’s clients get the best results and understand the policies and practices of the agencies, Kyle and his colleagues have successfully obtained thousands of unpublished policy documents through state-law FOIA claims in Delaware, Pennsylvania, New Jersey, and California. Access to Reed Smith’s “library” of documents through a Reed Smith lawyer is an essential advantage of being a Reed Smith client. Kyle usually gets results for his clients through the administrative process. But when litigation is necessary, he fights for his clients in court. He has brought scores of cases in courts in New Jersey, Pennsylvania, Delaware, and California. His published cases include Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth, 98 F.R. 2012 (2015), Toyota Motor Credit Corp. v. Director, N.J. Tax Court No. 002021-2010 (2014), McNeil-PPC, Inc. v. Commonwealth, 834 A.2d 515; First Union National Bank v. Commonwealth, 867 A.2d 711 affirmed, 901 A.2d 981; and Dial Corp. v. Delaware Director of Revenue, C.A. No. 06C-05-014 (Del. Super. 2008).

Fred R. DiIorio, Senior Tax Counsel, General Motors Co. LLC 300 Renaissance Center, MC: 482-C16-B16, Detroit, MI 48265-3000

fred.r.diiorio@gm.com 313 665 4053 Fred currently is Sr. Tax Counsel for U.S. Indirect Taxes. He has over 36 years in state and local taxation with LTV Steel Company and GM managing state and local tax compliance, audits, appeals, legislation and planning for multibillion dollar companies. He has managed various large state and local litigation throughout the U.S, including one heard by the U.S. Supreme Court. He currently is responsible for GM’s U.S. transaction tax audits, appeals and controversy. Fred is a former chairman of the Indiana Manufacturers Association’s Tax Committee and regularly participates in state and local tax associations across the country. He occasionally speaks at various tax groups. He earned a B.S in Accounting from Robert Morris College, Master in Accounting and Financial Information Systems (MAFIS) from Cleveland State University, Master in Science in Taxation from Walsh College and a J.D. from Western Michigan University, Cooley School of Law.

Biographical Information

Douglas C. Kleiner, Director - Indirect Tax Grant Thornton LLP, 3825 Edwards Road, Suite 430, Cincinnati, OH 45209

513-345-4631 douglas.kleiner@us.gt.com

Doug Kleiner is a director with over 20 years of state and local tax experience, including over 10 years with “Big 5” public accounting firms. Prior to joining Grant Thornton, he was the Senior Manager in charge of Transaction and Property Taxes for a billion dollar local, long distance and wireless telecommunications and technology services company. Doug serves as an indirect tax SME for multiple states including Ohio, Kentucky and Indiana and is an industry SME for gas and electric, telecommunications and the software industry. Additionally, Doug specializes in sales, use, and transaction tax issues affecting the manufacturing, gas and electric, telecommunications, mining, computer hardware and software systems, construction, oil and gas, distribution, retail, transportation and various service industries. He manages multi-state sales and use tax audits for Fortune 500 companies, supervises tax refund projects, performs indirect tax due diligence reviews, implements process improvements, negotiates audit settlements, directs compliance procedures, and negotiates, implements and reviews direct pay permit procedures in multiple states. Doug also offers technical expertise in personal property and payroll tax. Doug has been published in The Journal of State Taxation and is a frequent speaker on sales and use tax topics. Organizations include Tax Executives Institute, Manufacturers’ Education Council’s Ohio Tax Conference, Indiana Chamber’s Indiana Tax Conference, Council on State Taxation, Lorman Education Services, Grant Thornton’s internal training, client specific tax training and regional Indirect Tax Roundtables. Doug graduated from Wofford College with a Bachelor of Arts in Accounting, and he is a member of the Institute of Professionals in Taxation.

Leveraging Technology & Data to Improve Tax Compliance, Audit Defense & Produce Significant Tax Savings

Fred DiIorio, Sr. Tax Counsel, General Motors Company

Kyle Sollie, Partner, Reed Smith LLP

Doug Kleiner, Director, Grant Thornton LLP

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Overview

Using Big Data in State Tax Audits Data Analytics New Tax Technologies

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Effective Tax Department

Timely and efficient compliance Organized and streamlined processes Apply up-to-date policy and lessons learned Manage time and minimize risks

Successful audit outcomes Prepared for the issues before they are raised by the

auditor Apply lessons learned from prior audits Organized and streamlined processes to move audits

forward Owe little to no tax

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Big Data in State Tax Audits

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Challenges of State Tax Departments

Time and resource constraints

Canned reports frequently do not meet the needs of state tax

Recurrent changes to systems, processes, policies and personnel

Lack of support from IT and functional business groups

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Building a Dataset

AP data inconsistent, no sales/use tax field, invoices not organized Import data and invoices into e-document tool Corrected errors and extracted additional fields using

OCR and outsourced temporary help Analytics to categorize invoices and issues

Data, invoices, and supporting evidence along with analytic tool in one application

Handles multiple users across offices

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Multiple Data Sources

Feed multiple data sources into single portal Payroll and employee records AP, Purchase Orders, Asset reports Tax matrices, exemption certificates Unstructured data—photos, floorplans, invoices,

product manuals, job descriptions

Leveraging multiple data sets to create new data

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Telecom Industry8

Tax Problem: Equipment used for both voice and data, but sales tax

exemption only for voice

Tax Department Initial Data: Equipment list and ship-to location

Linked Additional Data: FCC cell tower list, zip code coordinates, customer

billing data

Solution: Matched each customer to specific tower

Consumer Products9

Tax Problem:Ultimate destination of products after shipment to

customer distribution centers Tax Department Initial Data:

Sales data included customer name, revenue, and shipping address

Linked Additional Data: Customer retail locations and sq. footage

Solution: Able to show relative product distribution from DCs to

ultimate consumer markets

Consumer Products10

Department Store Distribution Center-Ohio

Department Store’s sq. footage across U.S.

Amount of product going to Department Store’s in Ohio based

on percentage of sq. footage

Report Based Auditing

Advocate for using reports instead of invoices Especially for EDI purchases (Ariba; PO based) Validate accuracy with small sample All invoice data on the report Allows time for assessment of the data instead of

pushing paper Gaining more traction with auditors Developing solution for non-EDI purchases

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Information Access and Sharing

How to share datasets across many users Size limits Data security Collaboration Data integrity and maintenance

Web-based interface and repository provides instant access for tax department and auditors

Supplement with web-hosting and video-streaming applications

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Microsoft SharePoint13

Hawaii Audit

Excise tax appeal involving millions of transactions and lines of data Multiple users (taxpayer, counsel, auditor) Database too large to process on normal PC Multiple versions of dataset; risk of confusion

Data and documents uploaded to secure Extranet—auditor accesses remotely

Video conferencing instead of in-person meetings

Case Study 

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Data Analytics

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Analytics – End-to-End Process

• ERP SAP/Oracle/JDE, • Tax Engine Sabrix/Vertex/Taxware

• Leverage existing data warehouse/system functionality to obtain data• Transform

• MSSQL/Oracle/DB2 –Qlikview/Tableau/Spotfire

• Insight on tax over- & underpayments, compliance risks and tax planning opportunities

Extraction Staging Analysis Reporting

Database Staging

..

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Data & Analytics

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Data Analytics and Dashboards

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Real time, compliance control and forecasting More than just a pretty picture?

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Analytics—Behind the Pictures

Visual representations provide some value and guide next steps in process

Top “10” lists—invoices, vendors, spend, accounts Every invoice in NY over $1M with software code Top 10 spend vendors in FL with no sales tax Top 20 Retail Categories with no sales tax

Understand the story before the auditor comes in the door—where are the issues—be ready

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Analytics Experience at GM

Large amount of transactions resulting in the need to analyze a high volume of data efficiently and effectively

Need to access data that is often spread across various tables within systems or many different data sources making it difficult to do analysis

Indirect Tax Visualization– Leaders/Managers need to understand the tax impact to the business

More effective way to identify tax risks and opportunities

Increased system implementations resulting in the need to identify and address issues with data integrity resulting in incorrect tax consequences

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Analytics Experience at GM

Obtaining access to the data from the various systems – IT issues/complex SAP tables

Knowing your data – linking it together to ensure accuracy in reporting

Ensuring data accuracy and productionizing the regular updating of the data

Having tools to work with large data sets that Excel cannot handle

Centralized data source with all necessary data elements and ability to evaluate millions of lines quickly and efficiently

Able to identify and cleanse data issues

Recover overpayments of Sales Tax

Identify VAT recoveries/overpayments

Prevent future issues by reviewing purchase orders before processing payments

Ability to provide management with Visualizations to demonstrate Indirect Tax Impacts

Easily view trends and identify issues with accounting for tax assets and liabilities

Challenges Benefits

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Prioritizing Analytics Projects at GM (EXAMPLE)

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Analytics Lessons LearnedGM Observations

Start with the business problem first, and partner with knowledge experts

The most effective analytics projects tend to be iterative

Ask bold questions, don’t assume that something can’t be done just because you have been told “no” in the past

Tell a story with the data

Look for opportunities for ongoing value realization

For successful analytics projects, reward and recognize the business team as much as the analytics team

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New Tax Technologies

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What is Process Mapping?

Visually capture current processes and future events and outcomes: Tasks Roles Time estimates Know-how (precedents, forms, guidance)

Typically facilitated by process mapping specialists

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Application to State Tax

Basic Process MapNew Jersey Tax Appeal Overview

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Multiple Layers of Detail & Embedded Hyperlinks

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Forms Builder

Streamlines preparation of routine forms and correspondence Input data once, leverage throughout life of appeal

process All work product conforms with pre-determined best

practices

Reduced cost Work performed by more junior staff Reduced risk of clerical errors minimizes supervisor

review time

Case Study 

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Forms Builder Screenshot

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Forms Builder Screenshot

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Forms Builder Screenshot

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Robotic Process AutomationHow RPA works

Tax systems

Web

Enterprise automation

Tax associate’s desktop

• VAT compliance system• VAT determination system• VAT planning models

• Enterprise resource planning (ERP)

• Upstream systems• Analytics/reporting

• Spreadsheets• Word documents• PDFs• Emails• Data and

analytical tools• Collaboration

• Revenue authority websites• Service provider portals• Government/regulatory sites

Robots provide a low IT footprint method of

connecting IT systemsRobots leverage existing IT assets better.

Robots link and sit on top of existing IT assets and can typically be implemented without any changes to existing IT. Robots access applications the same way the human

operator would.In addition to an initial implementation, small IT changes can lead to a significant performance and robustness

improvement.

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When To Use Robotics

Since there is a large demand for RPA, we need to properly evaluate the processes that are good candidates for RPA:

Processes that are already being considered for transition to GBS

Processes that are repetitive and frequent

Processes that require a significant number of hours to accomplish

Processes that can be programmed and do not require a high degree of complex decision making

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Robotics Experience at GM

The GM Finance function is in the first year of implementing RPA to support various processes: The Global Business Services team has a dedicated RPA group that

evaluates and manages the portfolio of RPA projects To date, Tax and Customs have one significant process enabled, and

are developing a list of candidates for future automation RPA software is managed by IT, with strong integration by key

dedicated technical business resources GM is using Automation Anywhere as the RPA software vendor of

choice

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Artificial Intelligence

Predictions that A.I. will transform legal profession (should we be worried?)

Is A.I. useful for sales tax compliance? Cost vs. benefit A.I. only as good as the data feed Any better than typical matrix for routine purchases?

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Machine Learning

Natural language processing and learning to reveal insights from unstructured data

IBM Watson Hypothesis generation and scoring based on analysis of

client and public datasets Reasoning algorithms to score hypotheses Jeopardy winner in 2011

Other platforms and providers: Amazon, Microsoft, Google Applications built using machine-learning APIs

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Questions

ContactInformation

Fred DiIorio Sr. Tax Counsel, General Motors Company fred.r.diiorio@gm.com

Kyle Sollie Partner, Reed Smith LLP ksollie@reedsmith.com

Doug Kleiner Director, Grant Thornton LLP Doug.Kleiner@us.gt.com

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