© 2012 financial operations networks llc sales & use tax compliance: be prepared for aggressive...
TRANSCRIPT
© 2012 Financial Operations Networks LLC
Sales & Use Tax Compliance:Be Prepared for Aggressive Audits:
4 Steps to Take NOW to Minimize Your Audit Liability
www.TheAPNetwork.com
About Your PresenterNed Lenhart President of Sales, InterstateTax Strategies
Ned has focused on sales and use tax analysis and consultation for over 25 years. He started Sales Tax Advisors in 2003 after serving as a Firm Director for Deloitte in its Atlanta office. Prior to joining Deloitte in 1994, Ned was a Sr. Manager with Arthur Andersen in Kansas City, Missouri. Ned also worked for the Missouri Department of Revenue where he was the Director of the Compliance Division and led the state's civil and criminal tax enforcement efforts. He also served as Deputy Director of the Division of Taxation and Bureau Manager for the Compliance Division.
Ned is a CPA licensed in Georgia and Alabama. Ned is a frequent speaker at local and national tax and business conferences. He is a member of the AICPA, the GSCPA. He holds an MBA from Minnesota State University-Mankato and a BS from Iowa Wesleyan College.
Presentation Overview
• Significance of sales tax as revenue source
• Goal of sales tax audits
• Sales tax audit risks
• Industry specific issues
• Audit management
• Questions
Sales Tax In Perspective
Some believe $12 billion a year in sales tax goes unremitted (fraud, mistake, internet sales, erroneous exemptions, etc)
In 2011 $208 billion collected in sales tax
2010 2008Personal income: 51% 51%Sales 42% 40%Corporate Income: 8% 9%
Sales Tax Audit Goals
1. Collect under reported tax revenue2. Educate taxpayers for enhanced future tax
remittance3. Gather information about other businesses for
audit4. Gather information about emerging business
issues and trends that could impact future tax revenue
5. Challenge existing tax policies by forcing taxpayers to appeal audit issues in court
Sales Tax Audit Procedural Risks
Procedural Risks Failing to properly prepare for audit Providing auditor with unnecessary information Improper sampling agreements Not controlling communications with auditor Failing to educate auditor on business and
procedures Requesting extensions without valid reasons Failing to follow protest procedures
Procedural Risks: Actions or events that can prolong the audit or result in assessments that are not representative of the true liability
Sales Tax Audit Substantive Risks
Substantive Risks Not properly registered in states Not having valid exemption certificates for exempt
sales Not charging tax on otherwise taxable sales Not paying use tax on taxable purchases Invoices are not prepared properly resulting in
under taxation Failure to accrue tax on taxable intercompany
transactions
Substantive Risks: Errors made by the taxpayer that can lead to assessments of tax, interest, and penalties
Audit Management
1. Educate the auditor on what your business does2. Don’t hesitate to postpone if needed3. Be cautious about signing statute waivers4. Prepare refund claims if overpayments are suspected5. Insist on opening and closing interviews6. Understand protest rights and procedures7. Get help as soon as you need it 8. Get everything in writing9. Know the auditors supervisor and alert them if things start
going wrong10. Audit preparation begins before you receive audit notice
Industry Specific Audit Issues
Each industry has unique issues on which auditors will focus during their review. Knowing these issues in advance will help sharpen your focus in preparing for these audits.
• Manufacturing• Technology related (software, hardware,
services, data processing, information, etc.)
• Contractors and Repair Services• Service Providers• Wholesale and Distribution
Manufacturing
Missing resale exemption certificates
Untaxed purchases of supplies and services not qualifying for exemptions
Purchase of items for mixed use
Real property repairs and improvements
Technology Companies
Maintenance Contracts
Parts and supplies purchased for consumption
Unregistered business doing business in state
Improper taxation of bundled transactions
Failure to have documentation to support nontaxable sales
Contractors
Use tax on materials purchased from out of state
Credit for sales taxes paid to other states
Tax on material provided by non-profit clients
Possible flow through exemptions for contracts with governments
Retail
Not taxing otherwise taxable services
Improper invoice language
Untaxed supply purchases
Service Providers
Possible reclassification of services from nontaxable to
taxable based on “true object” test
Wholesalers
Missing Exemption certificates for direct sales
Improper registrations
Missing exemption certificates for 3rd party drop shipments
Mixed sales
Questions?
?
We Disarm Sales Tax Ticking Time Bombs
Preparing for Aggressive Sales Tax
Audits
NED LENHART, MBA CPA
770-985-9573, office404-403-6540, mobile
© 2012 Financial Operations Networks LLC
Thank You!
The Accounts Payable Network2100 RiverEdge Parkway, Suite 1010Atlanta, GA 30328Contact: [email protected] 770-984-1184www.TheAPNetwork.com
For further information on this topic, contact