Article

Common tax pitfalls when implementing an ERP system

March 31, 2025 · Authored by James T. Hedderman, Nathaniel Pease

Implementing an Enterprise Resource Planning (ERP) system is a significant undertaking for any organization. While the primary focus is often on streamlining operations and improving efficiency, it's crucial not to overlook the tax implications. Failure to address tax needs during the ERP implementation can lead to costly and time-consuming issues down the line. Here are some common tax pitfalls to be aware of and strategies to mitigate risk during your implementation process.

Inadequate tax needs assessment

One of the most common pitfalls is the failure to adequately assess and integrate tax needs into the ERP system. ERP implementers may not be fully aware of the specific tax requirements, leading to missed opportunities to tag data elements appropriately. This oversight can result in significant data gathering and wrangling post-implementation. To avoid this, it's essential to outline current alignment concerns with ERP results and ensure that the tax department's requirements are clearly defined and integrated from the outset.

Misalignment of tax strategy

Tax strategy alignment is another critical area that can be overlooked. It's important to determine the level of detail needed by the tax department and align processes for tax reporting. Often, data elements are implemented at the U.S. generally accepted accounting principles (GAAP), divisional or operational reporting levels, which may not meet tax needs. Post-implementation enhancements can be costly and burdensome, so we recommend including tax considerations during the initial implementation phase to avoid missing critical tax requirements.

Lack of granular functionality

ERP systems must include granular functionality for forecasting and reporting purposes. For example, the system should allow for adequate reporting at critical interim periods, such as monthly or quarterly reporting. Aligning on entity-level reporting for U.S. GAAP records, transactional activity and intercompany transactions ensures accurate reporting and timely validations. Proper alignment upfront can free up resources for less manual efforts and more value-add opportunities.

Resistance to change

Implementing an ERP system often requires a reevaluation of skills, changing processes and adapting from the familiar. This can be a struggle for team members who are resistant to change. Empowering the tax department to be a driver of change and aligning "tax champions" to lead alongside the financial and ERP teams can foster a better understanding of needs and develop skills to ensure future tax and accounting reporting is more than adequately provided. We recommend partnering with internal stakeholders, transitioning from any resistance TO empowered team members who champion an enhanced reporting future.