Moderated by Sherry, Financial Technology Consultant at Hyperbots
Sherry: Hello, and welcome to all our viewers on CFO Insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have John Naseath here with me, who is an accomplished executive with expertise in AI, machine learning, and computer vision, driving impactful technology solutions in education, healthcare, and business. This interview explores how discrepancies arise between line item taxes and overall tax on invoices, how businesses handle these discrepancies, and the implications for tax filing, especially when items are taxed at different rates or are exempt.So, to get started with the interview, John, can you explain why the overall tax amount on an invoice might differ from the sum of taxes calculated on each line item?
Jon Naseath: Sure, and your question is very kind of academic. It’s just the math adding up that we’ll see.But I first want to start this by saying any tax—when you say the word tax as a CFO or as a CPA—I’ve gotta say, I’m not giving tax advice. I’m just describing how the math adds up, and if anyone has any questions around how their tax filing should be done, talk to your own company’s tax specialist but the question here is really just… anytime you have many line items, and you’re applying a percentage like a tax application to a total whole number, you’re gonna end up with a long digit—more than two digits, right? And so when you add all those things up, if you sum up all those rounded off numbers, you can end up with a higher, bigger number. I remember this happened all the time when we were preparing financial statements. You add up all the sums of the totals, and it ends up being a different number than the total. It’s really just because of rounding—it’s one of the main reasons. So, if you have different line items on an invoice, and they have their own summed-up total calculated tax requirement, and you add all those up to the total one, or calculate based on the total, it could come up with a different number primarily because of rounding.
Sherry: And to dive deeper into the topic, how do businesses typically handle rounding differences between line item tax totals and the overall tax amount?
Jon Naseath: Sure. Well, most companies use an ERP system, and it’s actually calculated into that. It automatically sets up a rounding tolerance or an adjustment threshold. This feature allows small differences across the different numbers. So, for example, if you added up all the line items and it added up to $10.02, but the total might just be $10. If you add it up in pieces, it could be different. So, systems manage that, and sometimes it shows up, and you think it’s an error or someone’s spent too much time chasing it, but you have to verify—is it really rounding, or is it an error? Also, I’ll just call out fraud things where someone might intentionally add on a penny or two at the end of anything, and no one notices because they think it’s just rounding.So it matters, but really, it’s just the rounding. Every time I found what it is… well, I shouldn’t say every time, but I’m sure there were one or two times where there may have been an error somewhere in the calculation, and it showed up in the rounding. But you’ve got to chase it down.
Sherry: And are there any regulatory requirements that mandate calculating taxes on the total invoice amount rather than individual line items?
Jon Naseath: It really just depends on the jurisdiction where you’re at, especially when you’re doing global business. I’ve done business in almost every region, most countries in the world.Okay, not every country, obviously, but many regions, especially in retail environments—whether it’s online or not. There are different instances where you apply the tax, and then you also have to consider: are you applying discounts or rebates on the entire purchase or on a portion of it? It can be difficult. Usually, the ERP systems handle this, but you’ve got to be aware of what those requirements are on a line item versus how it rolls up.
Sherry: Could you also discuss how exemptions and special tax cases impact the overall tax on an invoice?
Jon Naseath: Exemptions… Yeah, I think for this, I’d want to bring up the broader context of tax. Especially in the U.S., there’s a lot of talk right now around tariffs and putting tariffs on other countries’ products.Tariffs are just another form of tax that’s applied at different times, and with exemptions, you know, I remember when Trump was in office, and he was going to put tariffs on everything. It seemed like every other week, he was changing what tariffs were on what items. I specifically helped companies set up supply chain routes that intentionally, very appropriately, and according to tax laws, routed things a different way, unbundled things, and then did the finished goods in a certain country to bring into the U.S. to avoid—tax avoidance is okay—but anyways, to make things non-taxable, to qualify for exemptions. It can be complicated to stay aware of how things are changing and what tax rules will be applied. For example, with a back-to-school scenario, it’s possible that certain things are held exempt for school-related items, perhaps. Or, you know, things are constantly changing. So you’ve got to monitor your products. Usually, a company is only selling one or two products, and they know where they fit in those categories. But when you’re doing large quantities of items, you’ve got to manage the different categories well.
Sherry: And how does the tax calculation for line items and overall totals impact tax filing from a seller’s perspective?
Jon Naseath: Sure. Well, just making sure you’re accurately categorizing what products fit under what tax, or, again, what tariff categories.Electronics could be different. I did business in India, bringing products in from China. Electronic-developed products are very painful. Or, shipping products into Brazil, they love to pile huge taxes on things. But really, it depends on what the products are. For example, India doesn’t want to bring in plastic children’s toys from China—it’s just not worth it. The U.S.—who knows what it’s going to be like? We’ll see in January with the new president-elect, and there’s talk of putting tariffs on everything. Again, it’s just a tax but state or local taxes—I think things are going to be changing a lot. So we need to monitor this, and I think this will be a big part of what CFOs and finance people, accounting, and tax people will be working on next year: changing tax strategies.
Sherry: How do ERP systems or other accounting tools help manage line items and overall tax discrepancies?
Jon Naseath: Well, the question is, how do they do it? They only do it as well as they’re programmed to do it. So if you put in garbage tax criteria and tax ratios, it’s going to apply them to future ones. I’m sure there’s going to be a lot of fire drills next year when companies realize something has changed, and they didn’t update it in their ERP system.How it does it is: it’s calculating it based on predefined rules. There are business rules, and it’s identifying a certain product in a certain category, and then how does that map into the government’s rules? It calculates it for you if it’s programmed correctly, but you’ll need your own control testing around your system testing to validate that. I’m sure there’s going to be lots of auditors testing that next year, to the degree it’s material.
Sherry: To help us understand this topic better, could you give us an example of when a seller might need to file taxes separately by category of items, and why that’s required?
Jon Naseath: Sure. One classic example is in a grocery store. They’re selling food items and non-food items. And in many places, that food item could be exempt, while the non-food item isn’t exempt. Again, rules change constantly. I was reading an article the other day about which food items are going to be allowed for EBT cards, which is government-provided funding for people who need it. And maybe those are taxed differently. So while filing taxes, the store needs to categorize and bundle what’s exempt and what’s not, based on the products they’re selling. Or, I’d even argue, how they’re bundled, because if you package it differently, it could change the tax criteria.
Sherry: And since AI is revolutionizing the domain of FP&A, I have to ask: what role can AI play in managing discrepancies between line item and overall tax calculations, especially when complex exemptions and rates are involved?
Jon Naseath: I think AI is going to be a double-edged sword for some people because you can certainly use AI to understand quickly what tax-exempt rules have changed. A lot of the AI search tools are using not just historical data—they can get you a broad view of what’s currently out there, but it might not be accurate, right? So you have to chase it back down to the real source. The other way that AI can be used more effectively, though, is… I haven’t seen a tool do this, but I’m sure it’s something you’re thinking through, and that’s great. AI could understand what’s changing, apply those business rules in an accurate way, and understand the details of the product—triangulating all the information. And I would argue that AI could also provide feedback to operations on ways to improve gross margin or your tax impact, or basically things you can change in your product to align with updated tax strategies—things maybe they hadn’t considered.
Sherry: Thank you so much, John, for this conversation, and for highlighting the complexities involved in managing taxes on invoices, particularly when line item taxes don’t match the overall tax. It’s very clear that handling these discrepancies accurately is essential not only for compliance, but also for smooth business operations.
Jon Naseath: My pleasure.
Moderated by Sherry, Financial Technology Consultant at Hyperbots
Sherry: Hello, and welcome to all our viewers on CFO Insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have Shaun Walker here with me, who is a seasoned internal audit leader with a wealth of experience in driving risk management, compliance, and governance initiatives across diverse industries. Thank you so much for joining us today, Shaun.
Sherry: Today we’ll be talking about handling sales tax verification for invoices with multi-destination shipments. To get us started with the interview, how do Hyperbots handle invoices with line items shipped to different destinations?
Shaun Walker: It’s an AI tool that treats each line independently. It identifies and extracts its unique destination address from the invoice with the shipping details, and this allows it to apply specific tax rates based on where each item is shipped. For example, if office furniture is shipped to New York and IT hardware shipped to California, Hyperbots will process each one separately and ensure that the correct tax rate is applied based on the destination.
Sherry: What role does state and local tax information play in Hyperbots’ tax verification process for multi-destination shipments?
Shaun Walker: State and local taxes vary widely. Hyperbots pulls data from data dictionaries for each destination and references both state and local tax rules. For instance, if New York has an 8.875% combined state and city tax rate for certain goods, and California has a 7.25% state rate, Hyperbots applies these distinct rates accurately for items shipped to those locations, ensuring compliance with each jurisdiction’s tax laws.
Sherry: To dive deeper into the topic, can you explain how Hyperbots manages the categorization of each line item for tax purposes when items are shipped to multiple states?
Shaun Walker: It categorizes each line item based on its product type and applies relevant tax rules to each destination. For instance, a software license delivered digitally to Texas might be exempt, whereas computer hardware shipped to California would be taxable. Hyperbots reference these tax distinctions and apply the correct tax treatment.
Sherry: How does Hyperbots address tax thresholds in different states for multi-destination shipments?
Shaun Walker: Some states impose tax collection only after certain purchase thresholds are met. Hyperbots track cumulative purchases to each state and apply tax once the threshold is reached. For example, if California requires tax only after $500 in cumulative purchases, Hyperbots will monitor the total spend per California and begin applying tax once the threshold is met.
Sherry: How does Hyperbots verify and correct any tax discrepancies for invoices with multiple shipping destinations?
Shaun Walker: Hyperbots verifies each line item’s tax application independently and flags discrepancies if the tax code doesn’t match the destination’s requirements. For instance, if a vendor applied a flat tax rate across all items shipped to different states, Hyperbots would detect this and recommend the correct rate for each location. This real-time validation minimizes errors.
Sherry: Could you summarize the main benefits of using Hyperbots for tax compliance on multi-destination shipments?
Shaun Walker: Hyperbots offers end-to-end automation. It ensures compliance with state and local tax laws for each destination without any manual intervention. It accurately categorizes and applies tax rates for each item, reducing the risk of error, saving time, and preventing compliance issues. For example, if an invoice has items shipped to three different states with unique tax rules, Hyperbots handles these seamlessly, delivering accuracy across all jurisdictions.
Sherry: Thank you so much for that insightful conversation, Sean. It’s clear that Hyperbots is quite the tool for robust handling of sales tax verification for invoices with multi-destination shipments.
Shaun Walker: Absolutely.
