Tax Planning Gains Resources: KPMG.

As companies demand more from their tax departments, Fortune 1000 tax departments are diverting more resources toward tax planning and are increasing spending on technology to handle their growing corporate role.

So says a recent survey conducted by KPMG LLP's Tax Management Solutions practice. The number one driver of the trend toward technological innovation within the tax department, the study concludes, is the potential benefit it offers to companies in the forms of lower effective tax rate (ETR) and elevated bottom-line performance. The survey also found that a 1 percent rise in ETR was accompanied by a 14 percent increase in spending on tax planning, a sign that high-ETR companies are turning to technology and the use of strategic tax planning to strive toward lower ETRs.

"We're seeing tax departments being asked to actively contribute to a company's bottom line, and shift away from their traditionally heavy focus on compliance. The tax group is now perceived to be more of an operating function as opposed to a traditional maintenance function," said Steve Martucci, a partner in KPMG's Tax Management Solutions practice.

Seventy percent of respondents said their department made significant investments in technology-related improvements in 1999, including reengineering and process improvements, intranets and software. At the same time, tax directors have been quickly closing the budget gap that once heavily favored compliance. In the last 12 to 18 months, spending on compliance dwindled to 55 percent of the tax department's budget, from the historically typical 75 percent, while planning surged to account for 45 percent of the budget, up from 25 percent.