As tax moves into the future, in-house professionals are experiencing challenges surrounding much-needed talent, gaps in technology investment and knowledge, and complexity in the global landscape, among others. To uncover how the in-house tax world is facing these challenges head-on, Tax Executive convened a panel of key experts: Stephen Dunphy, senior vice president of tax at Ross Stores Inc.; Alan Zhao, managing director, Ignition Tax, consulting, at KPMG; Fenella Salomonsson, tax director at AeroVironment Inc.; and Jay Fenlaw, tax partner at EY. Sam Hoffmeister, Tax Executive’s senior managing editor, moderated the discussion.
Sam Hoffmeister: How have tax departments evolved how they work, and how are they evolving their communication within their organizations?
Stephen Dunphy: I’d like to start by saying there used to be core functions in a tax department: income tax, sales tax, property tax. Today, you look at the landscape, we’ve supersized the tax department, added very rigorous transfer pricing groups, tax reporting, excise tax, business licenses, gross receipt taxes. You talk about ESG [environmental, social, and governance concerns], bottle deposits, extended producer responsibility for folks in California, unclaimed property—the list goes on and on. I feel like we have more and more work than we ever have, yet our departments still are the same size. That becomes an issue. And so how do we adapt to the changing environment? I think we have to do more with less, like we’ve always said, but what does that really translate into? And I think it’s leveraging our technology, robotics, better processes, more streamlined calculations.
Alan Zhao: I concur with Stephen’s assessment. The modern tax department must adopt a comprehensive strategy to optimize resource allocation. A critical question we should be asking is, Are we maximizing our efficiency with the resources at our disposal? In many instances, the integration of advanced technology tools is the key to achieving more with less.
Fenella Salomonsson: As far as communication within the organization [goes], I was going to say since we have ongoing business activities changes during the quarter, we should work closely with our accounting brethren and ensure we always have a seat at the table to inform the C-suite—i.e., keep them apprised of tax law updates, changes to tax laws, and the impact to the business of these tax law changes.
Dunphy: I would add to that that you take all of those key functions, and then you say, what else has changed? What the C-suite is looking at is they keep on hearing about this global minimum tax, they hear about this new income tax disclosure project, and they see more about country-by-country reporting, and they’re seeing it through that lens. While we’re over here trying to comply with all these other aspects which we feel are super important, there’s these other things that are shiny objects over here at the C-suite. So, we’re trying to manage the compliance efforts of all these new rules, but they don’t care so much. Maybe they’re not as invested in the smaller [picture], how you comply with the rules, but they want to know the bigger picture on the global minimum tax. Well, that’s a part of the income tax. It’s part of the international tax. So, then you start diving into those, and you change your talking points from what you’re telling your department to function, how to do day-to-day tax functions, to what you have to report out to C-suite. I feel like they’re two different talk tracks.
Salomonsson: And there’s also a lot of analysis and forecasting that we do for the effective tax rate as far as the new tax laws, like Pillar Two and minimum business tax. Even very large companies don’t have BMT [book minimum tax]. We’re not in BMT, we’re still under the ASC 740, looking at the common items and the temporary items and getting to taxable income usually under the old rules versus the new BMT tax. It’s just doing analysis and forecasting for it, so then we can provide the C-suite group with both the calculations.
Jay Fenlaw: I will amplify something that Fenella hit on: supporting the business. I’ll focus on mergers and acquisitions as just one example. There seems to be a real rise in M&A activity. It really was amplified during our low-interest-rate environment leading up to a few years ago, and we’re starting to see some of that come back. With regard to risks associated with tax positions that a target company has taken in pre-acquisition periods, the buyer wants more certainty than ever on what those issues are. And that translates into the tax group really needing to support the business throughout the M&A process. If you think about the nature of it, it’s unscheduled, it’s extra work on top of everything else the tax department has been tasked with doing, and it really leads to either having to prioritize duties that are already there or outsourcing some of that work in order to get everything done timely.
Hoffmeister: How have tax department structures been changing?
Dunphy: I think we still have our existing pillars that handle certain functions. I have an income tax compliance and defense team, I have a sales and use tax compliance and defense team, I have a tax reporting team. So, of those three pillars, then you throw out there excise taxes—where does that fit in? I’m widening the scope of each one of those groups, trying to say, hey, you will manage the excise tax going forward. Bottle deposits—sales and use tax group, you’re going to handle that going forward. Global minimum tax, good question—international income tax, you’re handling that. To me, the groups are staying the same number of bodies, you’re just increasing their scope and giving them the responsibilities to go get that done. If the number of people doesn’t change, yet the amount of work increases, you either have to find a more efficient way to do the calculations or you have to go maybe outsource some of that work or co-source some of that work. We’re seeing a lot more service providers like Jay coming in and helping us with some of those tasks.
Salomonsson: But even for our ongoing employees, we need to keep them engaged, and so we need to provide them with continuing education, especially with the new tax laws so they know how they can calculate Pillar Two or global minimum tax or excise tax. They need that additional education so they can begin to do it on an ongoing basis, you know, on a quarterly basis or an annual basis, rather than having a consultant come in and do it. I think some of them would like to be engaged in and learn so they can improve their skills. So, either we are getting better talent or we spend resources on our existing talent.
Dunphy: Here’s a plug for Alan. Alan mentioned he did some research for us recently on bottle deposits. We’re a tax department; we do not know a lot about bottle deposits and what states have those rules, what cities, counties have those rules, and which states don’t. And what are their specific rules? So, Alan leveraged an [artificial intelligence], so we went to the firm, Alan’s firm. Alan leveraged an AI and gave us back the information necessary to be compliant. Through that process, we could have either spent days researching individually or have somebody that has the AI capabilities to come back and be able to retrieve that information very efficiently. I thought that was a great win for Alan and his group. A good win for us.
Zhao: Generative AI [gen AI] is no longer a new or abstract concept for tax departments. In fact, a recent KPMG C-suite survey found that nearly all—ninety-eight percent—said they plan to invest in AI or generative AI capabilities for their tax function in the next twelve months. With the rapid adoption of the technology by all business sectors, there will be inevitable shifts in the hiring of talent and in organizational structure. There will be a heightened focus on recruiting individuals with technological expertise to enhance traditional tax functions and processes. The same C-suite survey actually found that since 2021, there has been a twelve-point increase in the preference to hire technology experts who can learn tax over tax experts who can learn technology.
Fenlaw: The biggest challenge for an evolving tax department is change itself. We are accountants by nature; many of us are not as predisposed toward accepting change, embracing it, as other people are. Learning to do something a new way is challenging. Our younger people coming in probably are more open to it because they’ve grown up with technology that more senior people have not. But it’s creating an environment where new hires feel embraced and welcome to raise new ideas, new ways of doing things.
Hoffmeister: What efforts should tax departments be making to welcome that next generation of tax professionals and cultivate a stronger pipeline of incoming talent?
Fenlaw: I’m fond of speaking about people, process, and technology in that order on purpose. If a department cannot get the right people in the right roles to function well, it matters very little the processes that are deployed or the technology that’s used. Neither will be optimized without getting the people right. Two things can really help a department get the people part of it on the right track for each role and rank: one is that each person understands how their individual contributions fit into the tax department as a whole, and second, being specifically told that we expect them to come up with new ways of doing things, that we welcome new ideas, and really embolden them to do that. I think that second point is really important. I see it in public accounting as well; if someone comes in new, they inherit a set of spreadsheets, for example, that are used to calculate some things. It’s just taken as gospel that this spreadsheet is the only way it can be set up: “This is how you use it, and it needs to look exactly like this from here to forevermore.” To say, “It’s OK to change this. I need it to do these three things, but as long as it accomplishes those objectives, however you want to put it together, make it look and function, that’s up to you. And by the way, I think you, younger person, will probably be better to do it more efficiently than I ever did,” is an important thing for leaders to say.
Dunphy: I’m going to add to what Jay’s saying about the people. Preparing for the last conference, we pulled some stats before going into that. One of the stats came from the TEI US tax leadership demographic analysis from 2023. In there was a graph, and two numbers jump off the page at me, to what Jay is saying. The first stat is eighty-one percent of all tax roles are held by either baby boomers or Gen Xers. That’s a big statistic. The other one was 44.1 percent of heads of tax are sixty years or older. So, when you say that, we’ve got a real problem with the pipeline. Here at TEI we spent a lot of time on the emerging tax professionals. We need to definitely spend more time on that function at TEI as well as at our companies, because how are we going to get that new workforce to be able to develop these spreadsheets or better if we don’t have that talent pool coming in? The proof is behind me with all the paper.
Salomonsson: We need to provide new talent, the young Gen Z with competitive compensation, and also have community outreach programs for them. I think they’re very interested in things like that. In the old days, we sat back behind our desk and punched numbers all the time; I think the trajectory has changed. People are more social—sorry to say this word—more social animals now than before. I think that’s helpful to them, especially the younger generation. I don’t think they want to just sit at their desks and work all day.
Zhao: Reflecting on my own career, I vividly recall the challenges of managing massive spreadsheets models before the advent of tools like Alteryx and gen AI. If only I could have utilized such technologies early on in my career—it certainly would have drastically changed the perception of the career and brought more enjoyment. Today, it is crucial that we equip the upcoming generation of tax professionals with these tools from the outset to set them up for success.
Hoffmeister: How have newer technologies and AI been utilized to help meet department needs amid a lack of that new talent? What specific tools are you finding to be most helpful in your work?
Dunphy: We hear a lot of AI and gen AI. From my lens, we don’t have that, per se, as developed as other companies. But machine learning and robotics seems to be something that we can here at Ross use to increase the efficiencies. So, looking at that, looking at the more manual processes, and seeing how we can use those two functions—machine learning and robotics—to generate less manual effort and more automated effort. But gen AI probably is less developed for us.
Salomonsson: I think Alan’s probably going to be the best person for the technology piece, but I can see that AI is very helpful to a lot of young folks who come from various different countries, to help with tax memos and also certain communications as far as emails are concerned, just to articulate themselves better. AI has helped with that process. Tell me if anybody hasn’t found that, but that’s what I’ve heard. But I think Alan might be best.
Zhao: To go back to the recent survey we released again—because I think the data really speaks to what we’re seeing ourselves—eighty-six percent of C-suite leaders surveyed agreed that gen AI tools will help supplement the talent needs in their tax department. The integration of gen AI into software and tools has not only helped elevated the day-to-day job functions of tax professionals, allowing them to focus on more strategic, value-added work, but is also helping tax departments make more data-informed decisions on behalf of their organizations. In short: the adoption of generative AI into tax functions represents a transformative and cultural shift to a more efficient, accurate, and strategic approach to tax management.
Fenlaw: From the service provider perspective, it’s just identifying those processes that are repeatable, voluminous, that require sifting through large amounts of data. I’ll give you two examples that I see working well with technology that’s been proven that I’m aware of. One is in reading invoices to determine industry code classifications for sales and use tax purposes. The machine can read, make the classifications, flag for human review where needed. Think about large organizations that need to process millions of invoices on a regular basis—that can really take a lot of human time out of the process. Then the second is on the research credit in identifying projects that represent qualifying expenditures for the credit. There’s machine learning that’s available that can read the projects and descriptions, and what happens is the success rate for the engagements of the projects that are actually reviewed by a human are much higher because they’re flagged by the machine first. So, the human’s time is more efficiently spent in identifying projects to qualify for the credit. Just a couple of examples where I see technology is enabling tax departments to do more with the same amount of employees or maybe even less.
Hoffmeister: Any final, overarching thoughts on the future of the corporate tax department?
Fenlaw: I’d say a couple things. One is that now more than ever, the tax department needs problem-solvers, people who can identify what needs to be done and find the most efficient way to do it. And I say that mainly because tax used to be left alone during any sort of head-count reduction, cost-cutting initiative. It’s not anymore. I see our clients really struggling with needing to participate along with finance and ops and everybody else in those types of initiatives. But the volume of work doesn’t go down. And the second thing I’d say, the future looks like there are more members of a tax department who are not a credentialed accountant. Some data scientists mixed in there that can really help pull data, wrangle it, send it where it needs to go.
Zhao: As a technology and data professional myself, I agree! Now more than ever, we need to be equipping tax professionals with the right skills and tools to make their jobs more enjoyable. What’s more, it will be vital for them to adapt to the ever-changing technology landscape, staying one step ahead.
Dunphy: When I was getting my undergraduate degree, my professors said, “You want steady work? Be an accountant. You’ll get it in both the good times and the bad.” I think, personally, it’s more true now. Given the complexity and the depth of work, it’s a great time to be a tax professional. It’s only getting more difficult, and there’s more of a need for people than ever before.
Hoffmeister: Thank you all for your time.
