Deloitte exec discusses unseen IT savings

Von Thomas Hoffman

Even though IT managers remain under pressure to cut costs wherever possible, more than 70 percent of U.S. corporations fail to include their tax departments in IT procurement decision-making, according to a survey of more than 200 IT and finance executives released this week by Deloitte Consulting LLP and IDC Research. As a result, millions of dollars in savings are being left on the table, according to Raffi Markarian, a principal at Deloitte Tax LLP"s ERP Integration Services practice in Chicago.

Computerworld"s Thomas Hoffman spoke with Markarian Thursday about the findings and what steps IT organizations can take to hold on to those cost savings.

Why is the tax function so often overlooked during the IT procurement process?

I"ve been working in this area for the better part of seven years for Deloitte and there appears to be a gap between corporate departments, particularly between these two. Global 2,000 tax departments generally report up to the CFO function, and IT is a different organization in the company. The two just don"t cross paths, which is unfortunate in many cases. It"s a function of how corporate IT and corporate tax have evolved over time.

Not to point fingers, but as CFOs are more actively involved in IT investment decisions, shouldn"t they be aware of the need to include tax in these discussions?

They should, and I"m hoping that recent trends of more active CFO involvement bode well for this area, as well. CFO involvement seems to be from a two-pronged approach: They"re actively involved in control and (in) Sarbanes-Oxley issues.

The second prong which I hope will work well in this area is an insistence on return-on-investment and payback scenarios. The more focus there is on hard, measurable results in treating IT as an investment like anything else a corporation does, the better. Historically, I don"t know if we can blame (CFOs) because I don"t know if they were that involved in IT purchases in the past.

Do tax considerations apply equally to hardware, software and services procurement?

How I would characterize it is to look at all of the costs of any IT investment. Treat an IT project as an investment, an asset that the company is purchasing. Not just to look at one component, such as software, but also internal labor and external resources, such as the use of contractors.

It"s important for IT to look at the initial investment and the ongoing investment such as maintenance.

In which areas do companies typically overpay taxes on IT purchases?

More than 70 percent of the companies surveyed don"t include tax (departments) in the decision-making process. Few companies would overlook having the legal department involved in reviewing a large purchase. It"s critical that the tax folks are involved as early as possible in the decision-making process. IT decision-makers aren"t aware of the tax implications and don"t put that very high on their checklist, if at all.

Do most IT purchases by corporations qualify for federal or state R&D tax credits?

R&D is just one aspect of many different items. I would say that in R&D, it"s probably not a majority but a minority of investments.

What are some examples?

Generally, IT investments that involve more sophisticated and novel approaches, such as RFID as an example -- things that are not as ordinary and "been there, done that" type of concept. R&D is probably one of the lesser elements of this entire strategy.

What recommendations would you make to IT procurement officers?

We touched on one, which is to include tax in some shape or form in the decision-making process ... include tax considerations as early as possible, then ... ensure that appropriate tax representatives are involved through the life cycle of that project implementation.

It"s a cause-and-effect kind of thing. Many folks on the IT side aren"t aware that every transaction that flows through an IT system has a tax implication somewhere along the line.