Local Taxes Simplified

Taxes may be one of the only certainties in life, but that doesn’t make it any easier to manage taxability—especially if you are a retailer with stores in multiple states. The complexities of tax management can be compounded by differences between jurisdictions within states, differences in the taxability of necessity products such as prescription medicines, house fuels or select foods, and disparate POS systems operating throughout a retail portfolio.

Supervalu encountered all of these challenges when it acquired Albertsons on June 2, 2006. The acquisition positioned Minneapolis-based Supervalu as the third-largest grocery retailer in the United States. At the end of its 2007 fiscal year, Supervalu reported annual revenues of $37.4 billion across a nationwide portfolio of 2,500 stores.

Robert Overstreet, manager of state and local taxes and licensing for Supervalu, talked with Chain Store Age about the company’s implementation of a tax-automation system and the subsequent improvements.

Overstreet’s department is responsible for filing and maintaining all sales- and use-tax returns, property-tax returns and for managing all compliance systems. Within those responsibilities, they also maintain all of the item taxability and tax-rate calculations for all Supervalu stores.

Each of the Supervalu banners, including each of the legacy banners from the Albertsons portfolio, has a different POS system, explained Overstreet, which further complicates the management of item taxability and tax-rate calculations.

Additionally, there are all those disparate quirks between state and local jurisdictions.

“For instance, in Louisiana prescription medicines are not taxable at the state level but in the parishes some of them are taxable,” he noted. “And in Idaho, everything is taxable except for firewood and charcoal that are used to heat a home.

“Not only are the taxes different, but states define foods and medicines in different ways and some states, like Colorado, have local options to apply sales taxes differently.”

About two years ago, Supervalu installed an automated tax-management solution from Berwyn, Pa.-based Vertex across all of the stores in the Albertsons portfolio. Simultaneously with this implementation, the company had an inventory-management project underway and synergies between the two projects boded well for the retailer.

“We were able to put in an automated process that loads a Vertex code into each item (SKU) and when that item’s UPC code is processed, then the data transfers down to the stores with pricing and advertising information,” said Overstreet.

The system queries Vertex when a UPC is processed, identifies the store location where the product is going and Vertex loads the appropriate tax for the individual UPC and selling destination. These updates are handled in a batch process, on Tuesday and Thursday of each week.

Albertsons has about 1.5 million UPCs that it manages in a dynamic merchandising environment, with about 10,000 new UPCs being added each month and a corresponding amount being taken out each month.

“One of the benefits we’ve seen are cleaner audits,” reported Overstreet. “It has also reduced customer complaints because now all items are taxed correctly. Before the Vertex automation, the process to determine product taxability was entirely manual.”

Another big advantage of the tax automation is that it has enabled better utilization of labor.

“It’s reduced the number of people that had to have daily interaction with taxability,” added Overstreet. “Before, we had about 20 people who were responsible for tax management in their various states. Now, we’ve gotten it down to just two people.”

The selection and implementation process of the tax-automation system went smoothly. From the time Albertsons submitted its request for proposal to vendors, until the tax-automation system went live was only about nine months, and Vertex provides all the necessary ongoing updates to the system.