The Business Case for Tax Automation in ERP

Avalara is putting a financial case around tax automation. The Total Economic Impact of Avalara study draws on interviews with six Avalara customers to model the costs and benefits for a representative business.

The modeled business is a global company with $300 million in annual revenue and 1,000 employees. Its tax function consists of a senior tax manager and an accounts receivable specialist, supporting 10,000 annual transactions, 2,000 tax-exempt customers, and 400 tax returns each year. In that model, the business sees a 153% return on investment over three years. Most of the value comes from lower spending on outside tax services, fewer audit-related costs, and less manual work across filing, exemption certificates, and tax research.

The study also shows why those gains depend on the underlying ERP environment. More systems and connectors can increase costs, while weak existing processes can make implementation harder.

Tax Automation Starts With the ERP Transaction

In the study, many tax problems began with processes surrounding the ERP transaction. Customers described manual calculations, outdated tax rules, inconsistent data, and exemption certificates scattered across shared drives or physical files. Those gaps created more work when teams had to correct transactions, file returns, or prepare for audits.

Growth made those weaknesses harder to manage. One organization said acquisitions increased revenue, transaction volume, and taxability while its tax processes struggled to keep pace. More transactions and jurisdictions meant more tax decisions to research, apply, document, and revisit when something went wrong.

ERP integration was therefore a core requirement for one interviewee evaluating tax software. In the study’s modeled business, a single connector links the ERP with AvaTax, Exemption Certificate Management, Managed Returns, and Tax Research. That setup moves more tax determination and compliance work into the flow of the transaction, reducing the amount that has to be handled manually afterward.

The Largest Gains Come From Changing How Tax Work Gets Done

After deploying Avalara, the modeled business shifts more tax work from manual processes and outside providers into the platform.

The largest financial effect comes from eliminating $150,000 in annual spending on third-party tax services that had supported returns, audits, and tax research. Over three years, the study values that reduction at more than $317,000.

Avalara also changes how the business prepares for audits. Centralized tax records reduce preparation time from 40 hours to six hours per audit, while the model assumes fewer penalties and less need for external auditor support. Together, those gains account for more than $210,000 in three-year value.

The remaining savings come from work handled internally. Avalara Managed Returns reduces filing effort by 85%, while Tax Research cuts the time spent researching tax rules by 90%. Exemption Certificate Management also reduces the time spent collecting, correcting, and maintaining certificates.

ERP and Process Readiness Shape the Return

Capturing those gains requires the tax platform to fit cleanly into the systems and processes already running the business. In the modeled organization, deployment takes three months, followed by another month to troubleshoot the ERP integration.

The effort can increase as the ERP environment becomes more complex. The study says costs vary with the number of ERP systems and connectors, as well as transaction volumes, tax returns, exemption certificates, and the jurisdictions a business must support. Existing processes matter too, with customers recommending that organizations address problems, such as poor exemption certificate management, before implementation.

Avalara’s role is to take more of that tax work out of separate manual processes once the connection is in place. AvaTax handles tax determination, Exemption Certificate Management centralizes and validates certificates, Managed Returns supports filing and remittance, and Tax Research keeps tax rules and rates available to compliance. Those capabilities work through the same ERP connection rather than as isolated tax tools.

That gives businesses a way to build tax compliance into the transaction flow and carry the same approach into higher volumes and additional jurisdictions. The study’s financial model suggests the payoff can extend beyond productivity, reducing the outside expertise and audit-related costs that accumulate when compliance remains heavily manual.

What This Means for SAPinsiders

• ERP simplification can strengthen the business case. Fewer ERP instances and connectors can lower the cost of extending tax automation across the business. SAP consolidation has a compliance payoff alongside its broader architecture benefits.
• Outside tax spend can expose automation opportunities. Heavy reliance on external tax services may signal work that has not been embedded into core transaction processes. Mapping that spend can reveal where automation could produce the greatest return.
• Process quality sets the ceiling for automation. Cleaning up tax processes before implementation does more than reduce project friction. It determines how much work can be standardized, automated, and managed consistently through the ERP connection.