When the Taxman Cometh, Independent Systems Is There

Published: November 11, 2008

by Alex Woodie

Another national election came and went last week, leading to the election of new leaders and the passage of new laws. While the promise of change from President-elect Barack Obama made the biggest headlines, businesses around the country should not overlook the many tax increases (or even decreases) approved at the state, county, city, and special-district level. Hand coding these changes directly into an ERP or accounting system can be a daunting task, but thanks to Independent Systems, System i shops can automate the calculations and remittance, and keep the taxman at bay.

Independent Systems, which was bought by its former partner and competitor Avalara earlier this year, is one of a handful of companies providing automated sales and seller's use tax calculations for System i shops. From its headquarters in Batavia, Illinois, the 31-year-old company does a lot of the grunt work of tracking tax laws across more than 60,000 tax jurisdictions in all 50 states, U.S. Territories and Possessions, and Canadian provinces, and packaging that into a shrink-wrapped product that's designed to work with major ERP systems.

The company's flagship product, SalestaxII, is a database of sales and seller's use taxes for every taxing jurisdiction in the U.S. and Canada. SalestaxII can be implemented on System i servers as an RPG program, or executed on Windows as a DLL, but the System i is really Independent Systems' sweet spot. In addition to SalestaxII, the company sells Laserbridge+, which assists users with tax compliance by generating the proper paper-based tax returns, and TrustFile, an electronic tax-filing program that is currently offered for only a handful of states.

Depending on the states chosen, all this can be had for about $12,000 per year, which is less than half the cost that Independent Systems' competitors charge, says John Osman, the vice president of business development and strategic accounts for Independent Systems, and the son of the company's founder, Jack Osman.

Despite the existence of automated tax solutions, some companies insist on trying to save a dime and assign a programmer or system administrator to manually code the tax calculations into their business applications, Osman says. "They say, 'Oh well, I'll just get a database file, and throw it in there. I'll be able to keep track of the changes as well,'" Osman says. "But when you get into thousands and thousands of places that you need to be technically staying on top of, it's just not realistic if you're wearing five other hats at the same time… That's the element people sometimes underestimate."

Sharing the Burden

Programmers who are plunged into the arcane world of sales and use tax are not being put to good use, Osman argues. A better use of programming time would be to learn a new technology that improves a company's business, as opposed to just meeting legal obligations. In other words, let a company like Independent Systems handle the drudgery of tax reporting and compliance, where they can take advantage of economies of scale and do it more efficiently with a larger audience.

It's not that what Independent Systems' does is rocket science. But it does require a mix of disciplines to do it accurately and cost effectively, Osman says.

"We're taking into account all the rules based on where customers are shipping from, and who and where they are selling to, and what they are selling them," he says. "We know that if you're selling between two states that have origin or destination taxing rules, how you charge the tax, and who gets the tax. We're keeping the rates up-to-date, we're maintaining the logic for how the tax is calculated. There are states that have thresholds where they do calculate tax on the line-item level--below a certain amount and they don't tax, above that amount, and they do. So these are all the nuances that make sales tax so cumbersome and time consuming, and these are the things that are all packed up and neatly maintained" by Independent Systems.

But the most labor-intensive part of Independent Systems' job may be keeping track of changes to taxes. With hundreds of new laws set to go into effect following last week's election--and a 1.5 percent sales tax hike proposed by the governor in the country's most populated state, California--there will be no substitute for actual experience and putting boots on the ground.

"We're monitoring Web sites, we're monitoring legislation, we're calling, we're e-mailing, and we're even still faxing with some of these people," Osman says. "We know who we can depend on. We know the easiest way to get information, and the places you can depend on those easy sources of information. And then we progressively task ourselves with the tougher follow-up when various entities don't prove to be reliable."

Luckily, this work and the fruits of the labor can be shared with Avalara, the Seattle, Washington-based company that acquired Independent Systems earlier this year. Avalara had competed with Independent Systems for several years with a new software as a service (SaaS) sales tax remediation solution, but now the two organizations are cooperating to build market share and a next-generation sales tax product.

Spreading the Wealth

Since the acquisition, Osman has been charged with building more market visibility for Avalara and Independent Systems, and taking share from the market leaders, Vertex and TaxWare (now owned by ADP), both of which also support the System i. "Vertex has been the IBM of sales tax for a long time. It's probably the first one [companies] look at," Osman says. "No knock against Vertex, other than they cost a lot of money."

While Vertex and TaxWare have a lock on the tier-one companies, a lot of small to mid size companies can't afford those solutions, leaving them looking for alternatives. These are the types of customers that Independent Systems wants, Osman says.

"We're here to save the day, frankly, for the rest of the people," he says. "I say that kind of jokingly, but if you sat in on a demo with a customer who had looked at Vertex or TaxWare, they resign themselves to doing it in house. Then they see us, and they kind of get giddy. They get excited and laugh on the phone. 'This is amazing. We can't believe this has been out there. Why didn't we know about you guys earlier?'"

Currently, Independent Systems offers pre-built connectors for several major i OS and ERP systems, including Infor ERP LX (BPCS and PRMS) and ERP XA (MAPICS), VAI's S2K, i5 from Solarsoft (formerly CMS Software), ASW from IBS, and MAC-PAC XE from TDCI. The company has done one-off connectors for JD Edwards World and EnterpriseOne, but it is not certified by Oracle. It also offers certified connectors for several Windows-, Unix-, and Linux-based ERP systems, such as Microsoft Dynamics, Syspro, Everest Software, Exact Software, and various other Infor ERP products. Avalara, meanwhile, offers integration with Sage and Epicor, and re-sells Independent Systems' Infor connectors.

Osman's goal for next year is to tackle some of the tier-one ERP vendors like Oracle (JD Edwards) and SAP. The company is also currently working on expanding the number of states that can integrate with its TrustFile system. Currently, TrustFile works with Tennessee, Florida, South Carolina, New Jersey, Pennsylvania, Connecticut, Illinois, Louisiana, Maryland, and Wisconsin. Some states, such as Texas and California, have developed their own programs for remitting sales tax. And many others have e-commerce Web sites where companies can pay their sales tax; in many cases, Laserbridge+ can help to prepare the proper forms.

For more information on Independent Systems or for free sales tax calculations for up to 10 locations, visit the company's Web site at www.taxrates.com.

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