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SURVIVING A SALES TAX AUDIT – AN INSIDER’S VIEWONESOURCE Indirect Tax The Tax & Accounting Business of Thomson Reuters
CARLA YRJANSONMarch 7, 2013
Upcoming Events• Webinars:
• March 14, 2013 – 10AM PST (2PM EST)– ONESOURCE Indirect Tax Latest Features and Functionality of Reporting
• March 21, 2013 - 10AM PST (2PM EST)– Managing Complex Indirect Taxation in Brazil’s Economic Renaissance
• Events:• March 19 – 22: SAP Financials
• March 17 – 20: TEI Mid-Year Conference 2013
• April 7 – 11: Oracle Applications User Group
http://tax.thomsonreuters.com/events/
REUTERS
Customer focusGlobal scale and presenceFinancial strength and stability
GLOBAL CAPABILITIES. LOCAL STRENGTH.
• Since formed in 2008 the Thomson Reuters brand is ranked 39 out of 100 in Global Brand Recognition.
• A recognized company• Look at last years annual report • 2010 Revenues:
US $13.1 Billion • 2010 Operating Profit:
$1.4 Billion
• Global presence to better serve multi-national corporations
• Over 50,000 employees in more than 100 countries
• Thomson Reuters is the world’s leading source of intelligent information for businesses and professionals
• We do this by investing in state of the art technology,
• designing solutions that integrate with customer workflows,
• and investing in people so that our solutions are designed by experts like you.
THE THOMSON REUTERS ADVANTAGE
BUSINESS OVERVIEW:ONESOURCE INDIRECT TAX
• Thomson Reuters formed the ONESOURCE Indirect Tax product line from 3 renowned brands to deliver an end-to-end automated solution for managing the indirect tax compliance lifecycle:
TAX DETERMINATION: Sabrix (Sabrix, Inc. acquired by Thomson Reuters in December 2009)
SALES & USE TAX COMPLIANCE: ONESOURCE Sales & Use Tax
VAT COMPLIANCE: Abacus VAT
INDIRECT TAX SOLUTION OFFERINGDOMESTIC
COMPLIANCEU.S. AND CANADA
GLOBALTAX
DETERMINATION
VATCOMPLIANCE
Sales & Use TaxCompliance
RegulatoryCompliance
Consulting
TaxCertificateManager
Reporting
Sales & Use Tax,VAT Determination
Calculation
Global Tax Content & Research
ERP Integrations(i.e. SAP, Oracle)
Consulting Services
Reporting
Data import and consolidation
Working papers and data analysis
Manual adjustments
Returns, eFiling and reconciliation
Today’s Speakers
Carla Yrjanson, CPAVP of Tax Research & Content
• Leads Tax Research & Content Team for Indirect & Property Tax
• Responsible for delivering Sales/Use Tax and Value Added Tax rates/rules for 175 countries
• Former Revenue Auditor with Washington Dept of Revenue
• Former Tax Manager with PWC
Agenda• Survey results highlighting the average cost of penalties
& interest resulting from audit
• Probability of an audit
• Current events impacting sales and use tax
• Top 10 ways you can trigger an audit in your business
• Minimizing audit exposure
• Proactive tips for addressing an audit
• Q&A
• 500+ SMB CFOs independently surveyed
• Respondents came from companies ranging in size from $20 million to just under $1 billion in annual revenue
• Across a range of industries
We want to be accurate, and don’t want to run the risk of an audit. The reality is, if you do it right, you don’t have any issues. If you don’t do it right, it ends up costing you in the long run.
,
Survey conducted by Tallman Insights and fielded by Mindwave Research, 2006
Small & Mid-market CFO Study
,
,,
Independent survey* of over 500Mid-Market CFOs:• Small to mid-sized companies
average more than $130,000 in annual costs to manage sales and use tax
• Yet they still end up paying an average $10,000 each year in penalties and interest due to errors and omissions
• Cost of compliance has been underestimated by as much as 50% because costs are so fragmented
$45,000Staff Costs
$130,000 Annual Costs$10,000Penalties & Interest
$15,000Tax Research Subscriptions
$35,000Third Party Costs
$25,000Tax Advisory & Consulting
Survey conducted by Tallman Insights and fielded by Mindwave Research, 2006
SMB CFO Study Findings
Despite best efforts, your errors will be found– 90% of companies were
audited once or more a year, 55% received 5 or more audits
– Even though 43% subscribed to tax rate tables, the average penalties and interest amounted to over $10,000 a year.
At least one or more audits per year
5 or more audits per year
0
20
30
40
50
60
70
80
90
100
10
Not If, But When You Will Get Audited
• Statewide Compliance and Outreach Program (SCOP)
• California Board of Equalization (BOE) specialists have visited more than 353,000 businesses statewide ensuring that California businesses are properly registered and paying taxes
• 56 BOE specialists are going door-to-door based on zip code
• BOE has found that 2% of businesses operating in California do so without permits or licenses.
California Door-to-Door Visits
State Tax Revenues Increase – Local Tax Revenues Decrease• Nelson A. Rockefeller Institute of Government
Report– State Sales Tax collections in Q3 2012 showed growth of
2.7% from Q3 2011 – 31 of 45 states with broad-based sales taxes reported
growth in sales tax collections for the quarter– 4 states reported double-digit growth
• North Dakota 30.3%• Florida 10.3%• Texas 13.3%• Hawaii 12.8%
Nexus but not registered
Observation
Exempt Sales
Use Tax
High Net Sales
Charging the Wrong Rates
History of Assessments
Unique Rules and Regulations
Whistle-blowers/Referral from other taxpayers
Acquisitions/Growth
1
2
3
4
5
6
7
8
9
10
Top 10 Audit Triggers
• Audit exposure = Potential audit assessment by a tax auditor
• Audit exposure is caused by:– Incorrect tax based on the tax status of the
purchaser– Incorrect tax based on the type of item sold– Incorrect tax rate applied to the purchased items– Missing documentation for exemptions/deductions– Unreported tax amounts– Incorrectly reported tax – Weak record-keeping/systems– Interpretation of taxability
Understanding Audit Exposure
• Key resolution - being proactive and doing things right the first time
• Conduct an internal audit– Put yourself in the shoes of the auditor– Evaluate accuracy and compliance– Document strengths and weaknesses– Develop a plan to address
weaknesses/areas of risk
• Drive changes towards a world class tax management practice
Reducing Audit Exposure
• Stay Calm & Get Organized– Preparation, Self-audit
• Communication with the Auditor– Clear, direct, honest
• Taxpayers’ Bill of Rights/Responsibilities– Protect the rights, privacy, and property of taxpayers– Register, know tax obligations, keep accurate and
complete records
• Use the Services of a Tax Professional during the Audit
• Do it Right the First Time– Tax automation, return preparation services
Proactive Audit Tips
Question & Answer
