Making Business Taxes less Taxing, with Lee Walthall
Session Moderator: Good afternoon, everyone!
Lee Walthall is the Chairman and CEO for Birmingham, Alabama-based NationTax Online, the only company currently offering a completely Web-based solution for business tax preparation, filing and payment in multiple local, state and federal tax jurisdictions. NationTax holds the distinction of currently being the only private company approved by the IRS to process a federal business tax form, Form 941 (Employers Quarterly Withholding) completely over the Web.
Mr. Walthall holds both B.S. and J.D. degrees from the University of Alabama, and a Master of Laws in Taxation from New York University. Early in his career he practiced law with Burr & Forman, a prominent Birmingham law firm, was Vice President of External Relations and General Counsel at the University of Alabama at Birmingham, and was a partner with White and Company, a Birmingham investment firm.
Welcome Lee! I'll hand the floor over to you now!
Lee Walthall: Hello everyone and thanks to AccountingWEB for having me. I hope you'll ask a lot of questions!
Lee Walthall: It's a pleasure to discuss a subject near and dear to everyone . . . and one sure to solicit an "interesting” response regardless of the audience taxes, and more specifically BUSINESS taxes. We are not talking about personal income taxes with which we are all familiar, but taxes such as sales and employer withholding taxes filed by businesses.
I'm sure you already know that the paper tax filing process is time-consuming, often confusing and sometimes costly when penalties and late fees are involved. There are more than 500 million business tax filings per year including both federal and state taxes. Each tax has its own complexity. Plus, there can be as many as 600 different state sales tax changes in this country each year. Paying sales taxes can be like trying to hit a moving target. Sometimes honest business owners and accountants will make mistakes because of business tax filing complexities.
According to some state taxing authorities, the inaccuracy rate for paper sales tax returns can be as high as 30 percent. All it takes is one illegible number, hand-written on a paper tax form to kick the file into another batch for special handling due to an error.
Gail Perry: What are some common errors on paper tax returns?
Lee Walthall: Miscalculation of discount; use of incorrect rates; failure to calculate amount correctly; addition errors; incorrect check amount. These are just a few.
Randi Baylis: How does e-filing eliminate errors as compared to paper filing?
Lee Walthall: Some e-filing methods can eliminate those human error-type mistakes and minimize penalty payments for businesses and processing time for government.
Most of you are probably already aware of the IRS's goal of 80 percent of all tax and information returns being filed electronically by the year 2007 for both individual and business tax filers. In response, the market is beginning to produce more e-filing options for individuals and businesses that will help the IRS achieve this goal. NationTax is one company working with the IRS on business taxes.
Perhaps also due to the IRS initiative, many states are now looking to reduce the number of paper tax forms being filed. They, too, are encouraging a variety of electronic filing methods as a way to reduce their processing costs, improve "customer service" and make more efficient use of their resources. A typical business files state sales tax at least 12 times a year as compared to the usual once a year filing for personal income tax for individuals.
Gail Perry: Is it possible that the IRS foresees electronic filing as a precursor to automatic debits to business accounts on the theory that it will be easier for businesses to meet deadlines if they don't have to think about filing their taxes?
Lee Walthall: Understood, Gail. The taxes have to be calculated monthly, so it's not likely that there would be automatic debits. By moving to e-filing, the IRS believes businesses will save $16-$18 billion a year. That's quite a savings!
Gail Perry: How will that money be saved?
Lee Walthall: The State of California provides a great example of the cost-savings to states. California estimates that it costs $25 to process a paper sales tax form and even more if the form is inaccurate. However, it costs less than a dollar to process an electronically filed form. Paper filed forms need to be entered by hand - or scanned - whereas electronic forms are automatically entered into the state databases.
A major cost savings is realized through the elimination of as many as 30 percent of the errors commonly incurred and the costs associated with that. This past year Delaware encouraged personal income tax e-filing under a newly developed state e-filing system. Officials said they wound up processing personal income tax returns two weeks ahead of schedule. These time savings allowed the state to redirect resources to areas where they needed more assistance, resulting in a more efficient government.
We can certainly extrapolate this time savings to business tax filing, and even more so since businesses file more often.
Randi Baylis: Lee, what other states are having successes with e-filing?
Lee Walthall: A number of states on the personal income tax side. E-filing of business taxes are just beginning to emerge. For example, we're now "live" in 11 states and with the IRS.
For the IRS and the states to reach their e-filing goals, businesses must become more comfortable with the various new e-filing options.
You are in a unique position to encourage your clients to file electronically. And there are a number of e-filing technology options. They include: telefile (file by phone), using EROs (electronic return originators), using home computers through a third party transmitter, and using software products NationTax offers service through the use of a PC through a third party transmitter. This is a Web-based filing option. The tax filer logs on to a Web site and prepares, files and pays their business taxes over the Internet using a secure server where the calculations are done with the latest tax rates.
Remember that software programs may or may not facilitate electronic filing, depending on how the return is communicated to the taxing authority. If it is uploaded through a modem, it is e-filed. If it is printed out and mailed, it is paper filed.
With increased use of computers and widespread access to the Internet in the workplace, there are other "e-options" available to the average business for electronic filing. Filing systems previously targeted to individuals because of their low cost and simplicity are now becoming available to businesses tax filers. Our research has shown that these electronic filing options will only multiply as more businesses become comfortable with computers and Internet access becomes more widespread.
In working with state and federal taxing authorities, small business filers, and Fortune 500 business tax filers, there are three points that help convert paper business tax filers to electronic business tax filers:
Tax filing can be much easier for businesses and their agents when using the electronic options available.
Randi Baylis: Does e-filing save money for the filer?
Lee Walthall: Yes. The biggest savings is time. More than 80 percent of filings are by businesses with fewer than 10 employees. So in many cases, the filer is directly involved in running the business. We estimate that the average time for preparing, filing and paying a sales tax return is reduced from 45-60 minutes to 1-3 minutes.
Since there is approximately a 20-30 percent error rate, it eliminates the cost incurred both by the taxing authority and the filer resulting from such errors. Most e-filing options, save telefiling, provide updated tax code changes and perform mathematical calculations for the filer, ensuring the return is correct unless the inputted number is not correct.
Randi Baylis: How does e-filing help accountants as opposed to businesses filing for themselves?
Lee Walthall: Good question. Since typically time is the accountant's most valuable asset and e-filing saves time, it means money in their pocket . . .and can mean a savings to their clients.
I'm getting some great questions . . . are there more?
I'm curious, what are the considerations we would need to know to encourage the use of e-filing by accountants on behalf of their clients?
Session Moderator: Lee, I'm curious, do you find that a lot of firms are resistant to this thinking?
Lee Walthall: Our experience to date has been that the more client-oriented the accountant, the more responsive they are to the service because they see the benefit both to themselves and their clients.
Session Moderator: I see...
Lee Walthall: We certainly don't see ourselves as any kind of a threat to accountants, but rather a tool to help accountants and thus, in turn their clients. We also know that in many cases the preparation of business tax returns, and in particular sales tax returns, are something accountants perform that they would really rather avoid. Thus anything that makes this process easier is a big help to them.
Another major factor that we mention in connection with the IRS, but we see emerging as a factor, is that e-filing is moving in a mandatory direction.
Randi Baylis: How about security for e-filing?
Lee Walthall: We employ the same measures for security as used by major financial institutions. In fact, since we are partnering with a number of financial institutions across the country, they subject us to the same standards as they must meet.
As a further explanation of some of the security protection we use, we subject ourselves to semi-annual, outside audits. We employ intrusion devices. Our Web site is located in a 24/7 hosting facility with armed guards, cameras, thumbprint entry, etc.
The goal of e-filing is to, quite simply, reduce the amount of paper being filed and the costs associated with it. We're fortunate that there are a number of new technologies available to help meet that goal.
Well, I hope this discussion will encourage some of you to try different e-filing options to determine what works best for you and your clients.
Session Moderator: Lee, it looks like we are out of time. I know everyone has learned a lot today. Thanks for being here and sharing your expert knowledge! You are listed in the consultants' directory in case we want to contact you, right?
Lee Walthall: Thanks for the opportunity to speak to you. I am in the directory. Feel free to contact me if you have any other comments or questions later! Let's all try to make business tax filing LESS taxing!
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.