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Sales & Use Tax Tips for July 2009
SALES TAX - WHAT YOUR ACCOUNTANT NEEDS TO ASK
Is Your Business New or Growing? - Are Sales and Use Tax Properly Covered? - Are You Keeping Up on Registrations, Taxability and Exemptions?
Sales tax issues affect personnel in Accounting, Accounts Receivable, Accounts Payable, Billing, IT, Purchasing, Tax and various others departments including management/ownership. A proper understanding of Sales & Use Tax laws and the associated procedures will help ensure the business' success, minimization of the compliance burden and reduced risk of corporate officer personal liability assessments.
New markets, products or services raise taxability and nexus issues, as well as additional collection requirements. In today's world of inconsistent, constantly changing Sales Tax laws and aggressive states trying to fill their revenue coffers, businesses simply cannot afford to rely on the status quo. Olivier & Associates can help keep a new or expanding business in compliance and help ensure they only collect and pay Sales & Use Tax when warranted.
O&A works with accountants to assist their clients in handling sales and use tax matters. We’ve included four key questions with some discussion points below to help accountants help their clients discover and understand common sales tax pitfalls:
1) Are you registered for sales tax and filing returns?
Filing A Return Limits Look-Back: When it comes to Sales Tax, there's one consideration all businesses should make a priority - properly register and file Sales & Use Tax returns. Whether intentional or unintentional, the financial consequences of not filing when required to do so can be enormous.
If you've never filed and are audited, most states have unlimited look-back. They can backtrack to your first taxable sale in the state and assess tax, penalties and interest. Sales Tax is your customer's obligation. It only becomes your expense if it is not properly collected and remitted to the state.
Registering for Sales & Use Tax purposes does not resolve prior liabilities and should only be done after a careful evaluation of your exposure situation and the possible exposure resolution alternatives available to you. This evaluation should be done with the help of a qualified Sales Tax professional. Registering prematurely and indiscriminately can severely limit your options and any positive financial benefits. In fact, it can easily result in negative consequences.
Evaluate and resolve past liabilities, register and file a return, limit the look-back period, and minimize your future liability.
2) Are you registered for sales tax in every state where you’re filing income tax returns?
Sales tax nexus is easier to trigger than corporate income tax nexus. If you have corporate income tax nexus in a state you will likely have sales tax nexus too.
3) How do you handle exemption certificates?
Do you properly obtain, keep and file them? Are they readily retrievable? Are they current, complete and correct? Sales & Use Tax is not your expense; it's your customer's! It becomes your expense if you don't properly collect it or document exemptions. Exemption certificate management is a big issue.
Get A Handle On This Important Area. "It's taxable unless proven otherwise." This is heard all too often. The burden is on business not only to receive properly completed exemptions certificates, but to maintain and be able to retrieve them years later.
When auditors review your invoices and purchases, they'll require supporting documentation when tax wasn't charged or paid. If your customer was exempt, but you can't retrieve the certificate to prove it, you could owe the tax plus penalties and interest! The large volume of certificates to be managed by some businesses can be overwhelming.
Those missed exemptions are then often included in a state’s sample base for projection over the multiple years being audited.
4) What are your Use Tax procedures?
Do you properly self-assess use tax? When have you last reviewed your overall business and your products and services for available exemptions? Do you properly assess use tax on internet purchases and other nonexempt purchases where sales tax was not charged? A rate “differential” is often required to be determined, self assessed and remitted when buying supplies or other taxable products or services at a lower rate outside of one’s own taxing jurisdiction.
For more on O&A’s work with accountants on sales and use tax issues impacting their clients, please see the Accounting & Law Firm section under Who We Serve.
If you are concerned about how your company’s sales and use tax issues have been handled in the past, we suggest performing a Diagnostic Review to identify, quantify and fix problems going forward. Exposure Resolution options can be explored to resolve past hidden liabilities.
Click here for more Sales Tax Tips or visit our website www.oatax.com. For additional insight on common sales tax concerns, please see the Did You Know? section of our website.
Should you have questions or require assistance please Contact us today or call 1-888-466-2829 to speak with an Olivier &
Associates Sales and Use Tax professional for a no-obligation consultation about your Sales & Use Tax issues.
* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.
