Tax department survey results to be published this winter.

Preliminary results of TEI's 2004 survey of corporate tax departments were released during the Institute's 59th Annual Conference, with complete results to be published in early 2005. Approximately 1,400 senior tax executives responded to TEI's corporate tax department survey this summer, an overall response rate of more than 50 percent. The results of the survey--which are currently being compiled into more than 5,000 tables--follows up and expands upon a survey con ducted by TEI more than a decade ago.

The survey was discussed during the opening session of TEI's New Orleans conference in mid-October. According to TEI President Judy Zelisko, the survey has already produced valuable benchmarking data. During the Annual Conference, Ms. Zelisko and 2003-2004 TEI Corporate Tax Management Committee chair Lynn Jordan (who headed the survey's advisory board) reported the following:

* The majority of respondents have their primary place of business in the United States, and another 7 percent are in Canada, and 5 percent are in Europe. The parent companies, however, are more evenly divided, with 44 percent in the United States, and 36 percent in Europe.

* The titles of senior executives are almost evenly split between Director of Tax or Corporate Tax Director and Vice President. Senior tax executives overwhelmingly report to their companies' CFO.

* The companies of one-third of the respondents have worldwide revenue ranging from $1 and $5 billion. Thirteen percent had more than $10 billion, and 24 percent had less than one-half billion.

* About 10 percent of the respondents have one-person shops, while 41 percent are in the 2-to-5 range. Only 3 percent have more than 50 full-time tax department personnel.

Ms. Jordan called today's tax executives a "hard-working" lot, noting that the average tax executive works 2,300 hours per year. Tax return preparation at the U.S. federal and state and local level is the primary areas of responsibility. Other compliance areas include sales and use tax, annual reports, personal property tax, and business licenses. "Perhaps not surprisingly," she added, "work on foreign income and transaction tax returns is often outsourced in whole or part."

Ms. Zelisko reported that transfer pricing is the number one planning area that is outsourced, with 7 percent of companies wholly outsourcing the work and another 40 percent outsourcing portions.

Review and Audit of Returns.

"Companies are fairly evenly split in the review of their tax returns," Ms. Zelisko said, "with 45 percent having no outside review and 43 percent being reviewed by the company's audit firm." Almost 70 percent of the respondents are subject to the corporate governance provisions of the Sarbanes-Oxley Act, she added.

TEI's president explained that the survey asked about internal control areas under Sarbanes-Oxley. "The calculation of the U.S. provision and contingency reserves, and tax footnote preparation are section 404 control areas for 70 percent of tax departments." At the lower end of the scale, she noted, control areas include escheat, payroll taxes, and excise taxes. Most executives do not meet with either the company's Board of Directors or its Audit Committee.

Perhaps because of the effect of the Sarbanes-Oxley Act, Ms. Zelisko stated, 12 percent have seen an increase in the use of their companies' external audit firm, while 37 percent have experienced a decreased. A little more than 10 percent no longer use the external auditor firm for tax services.

As for IRS audits, Ms. Zelisko reported, the majority of companies are not currently under audit. About one-third go back to the 2000 tax return, while 6 percent have open years extending back at least a decade.

Tax Department Measurements

Ms. Jordan reported that the survey also asked questions concerning the measures used to evaluate the tax department. "The number one measure was the lack of surprises," she said, "with audit results and the effective tax rate running second and third." Most companies evaluate their business's performance on a pre-tax basis, she added.

Next Steps

Noting that the Institute is in the midst of analyzing the results, Ms. Zelisko predicted that the final report will have more than 5,000 tables available (in the book or on the CD-ROM). "We will break down revenue, size of department, and other factors by industry.

"We will also cross-tabulate the results by revenue and department size," she said. "Apropos the use of external auditors, for example, the data show that for companies in the $1-to-$5 billion range, 45 percent saw a decrease in the use of external auditors, 3 percent stayed the same, and 13 percent increased. In contrast, the very largest companies saw a 73-percent decrease in the use of external auditors."

Or, she suggested, consider the number of full-time tax personnel. "For the very smallest departments, 12 percent saw an increase in size, while 36-percent decreased. For the largest departments, 50 percent saw an increase in tax personnel, while 28 percent decreased."

"This survey will provide important benchmarking information for years to come," Ms. Zelisko concluded, "and now that we have gained valuable experience in developing the questions and using the Internet to survey our members, we are considering updating it every two or three years."

The survey was developed under the aegis of an advisory board formed in 2002 to develop the survey instrument and oversee the selection of a firm to conduct the survey and analyze the data. The survey was distributed in July by Schulman, Ronca & Bucuvalas, Inc. of Silver Spring, Maryland.

Information about purchasing the survey results--which will be available in both print and CD-ROM formats--will be available after the end of the year on TEI's website at www.tei.org. Copies will be provided without charge to companies that participated in the survey.

Amount Outsourced for: Planning

                                            All   Part

Incentives/Credits (N=1,220)                 3%    32%

Mergers, Acquisitions, Dispositions, &       2%    44%
Restructuring (N=1,212)

Transfer Pricing (N=1,056)                   7%    40%

R&D Credit--Compliance/Planning/Audit        5%    23%
(N=1,025)

ETI Planning (N=917)                         6%    24%

International Tax Planning (N=1,010)         6%    44%

Non-U.S. Tax Planning (N=935)                4%    37%

U.S. State & Local Tax Planning (N=1,249)    1%    34%

U.S. Federal Tax Planning (N=1,250)          1%    38%

Note: Table made from bar graph.

Amount Outsourced for: Compliance

                                        All     Part

Exercise Taxes (N=621)                   3%       7%

Foreign Transaction Taxes (N=587)        7%      22%

U.S. Sales/Use Taxes (N=1,056)           2%       9%

Real Estate Taxes (N=892)                7%      16%

Personal Property Taxes (N=1,004)        8%      16%

Census Reports (N=387)                   0%       2%

Information Returns (1099s) (N=583)      3%       7%

Business Licenses (N=867)                1%       2%

Unclaimed Property/Escheat (N=666)       2%       5%

Annual Reports (N=955)                   2%       3%

Foreign (non-home country)              28%      23%
Income/Capital Tax (N=634)

Foreign (home country)                  18%      17%
Income/Capital Tax (N=572)

Canadian Income/Capital Tax (N=718)     22%      20%

U.S. State & Local Return (N=1,245)      6%      14%

U.S. Federal Return (N=1,248)            6%      18%

Note: Table made from bar graph.

Use of Pre-Tax or After-Tax Measures

                           After-Tax   Pre-Tax   No Answer

Incentive compensation        28%        54%        19%
of corporate executives

Performance of business       14%        66%        20%
units

Incentive compensation        14%        65%        21%
of business unit
management

Note: Table made from bar graph.

Measures Used to Evaluate Tax Department

Other                                     5%
Tax savings per hour of research          1%
Economic value added                     20%
Return on investment                      6%
Lack of surprises                        71%
Effectively manage use of consultants    48%
Compliance deadlines met                 55%
Business unit satisfaction               38%
Quality of ideas generated               56%
Contribution to before-tax earnings      13%
Measurable tax project objectives        52%
Staying within department budget         56%
Results of audits                        61%
Generated cash savings                   56%
Economic profit                           9%
Cash taxes                               48%
Effective tax rate                       54%

Note: Table made from bar graph.