Procurement Cards and Sales Tax Compliance: Mastering the Complexities

Transcription

1 Presenting a live 110-minute teleconference with interactive Q&A Procurement Cards and Sales Tax Compliance: Mastering the Complexities WEDNESDAY, MAY 30, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Douglas DeRito, Principal-In-Charge, Ryan, Atlanta Steve Peck, Northeast Regional Tax Manager, Georgia-Pacific Corp., Atlanta For this program, attendees must listen to the audio over the telephone. Please refer to the instructions ed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at ext. 10.

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3 Continuing Education Credits FOR LIVE EVENT ONLY Attendees must listen to the audio over the telephone. Attendees can still view the presentation slides online but there is no online audio for this program. Attendees must stay on the line for at least 100 minutes in order to qualify for a full 2 credits of CPE. Attendance is monitored as required by NASBA. Please refer to the instructions ed to the registrant for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Procurement Cards and Sales Tax: Mastering the Complexities Seminar May 30, 2012 Douglas DeRito, Ryan Steve Peck, Georgia-Pacific

6 Today s Program P-Card Compliance Difficulties, And Options [Douglas DeRito] Slide 7 Slide 11 Working With Issuers Of P-Cards [Douglas DeRito] Slide 12 Slide 13 P-Card Experiences, Best Practices At Georgia-Pacific [Steve Peck] Slide 14 Slide 24

7 Douglas DeRito, Ryan P-CARD COMPLIANCE DIFFICULTIES, AND OPTIONS

8 Use Of Corporate Procurement Cards Overview Procurement card operations/background Sales and use tax issues State practices for verification of sales tax paid and use tax accrual and remittance Tax compliance issues Current card user practices/best practices 8

9 Sales And Use Tax Issues Level of data (Level 1, 2, 3) Merchant community responsibility Determining if sales/use tax is due, and rate application Sales and use tax information must be retained for verification on state audit. Sometimes, it is difficult to determine when and where a sale took place. Internal controls for, and procedures around, P-card usage will determine the sales/use tax compliance needs of an enterprise. 9

10 State Practices For Verification Of Sales Tax Paid, Use Tax Accrual And Remittance Manual review and verification Estimation methods Combination approaches Vendor requirements Card user requirements Card issuer requirements 10

11 Tax Compliance Issues Tax-sensitized documentation for each transaction Information and documentation required What information is currently available? What internal controls are in place? P-card processes and integration with compliance procedures How P-cards are used can drive tax decision needs. 11

12 Douglas DeRito, Ryan WORKING WITH ISSUERS OF P-CARDS

13 Working With P-Card Issuers Level 1, Level 2, Level 3 data complexities Currently, P-Card issuers are not focused on providing sufficient data for tax rate application and tax management. How P-Cards are used can drive tax decision needs. The merchant community is inconsistent with the level of data being provided. Card brand name can provide the infrastructure for transaction management. Discounts are provided for proactive tax management, in some cases. Separate P-Card usage: Exempt and non-exempt purchases. 13

14 Steve Peck, Georgia-Pacific P-CARD EXPERIENCES, BEST PRACTICES AT GEORGIA- PACIFIC

15 Background I. Georgia-Pacific was a Fortune 500 company until its purchase by Koch in late 2005; it is now privately held. II. Manufacturer of cellulose tissue, paper, corrugated/packaging and building products including lumber, plywood, OSB, gypsum and chemicals III. Manufacturing/converting locations, as well as offices, warehouses domestically in about 35 states IV. Began using P-cards in the early 1990s but for years (until turn of the millennium) only for office products and inconsequential, low-dollar purchases V. About 3,000 P-cards are now in use, with significant annual spending (about 250,000 transactions) VI. Usage is ramping up, both in terms of dollars, types of purchase activity and across all business units 15

16 Overview Of Sales And Use Factors I. 75% of merchants are Level 1. Charge is transmitted to bank to pass to the company, and does not include a separate tax charge. A. Primary challenge is to ascertain what transactions have not been taxed by the merchant. B. Some merchants that have Level II capabilities are not sending the separate tax amount; expeditious vs. tax accuracy. II. P-cards are widely distributed to users for a wide array of purchase activities. 16 A. Not limited to vendors [or super-vendors] or restricted to certain types of goods/services B. No leverage to sales and use tax based on specific merchant or type of spending

17 Overview Of Sales And Use Factors (Cont.) III. Burden is on the P-card holder to review receipts for tax and input in allocation program, if tax was indeed part of the Level I gross amount. IV. Key point: If cards were designated for certain super vendors or assigned to certain spending, that would aid and abet tax review and control tax exposure. This has not been our pattern or experience. 17

18 P-Card Technical Tax Configuration I. Banks, in our experience, have not programmed allocation programs to address tax considerations. II. Georgia-Pacific designed a custom sales and use functionality to integrate with our Vertex TDM AP system. A. Paid bank modified its user allocation program to accommodate. B. Tax codes incorporated: 1. ME = Manufacturing exempt 2. SE = Service exempt 3. MS = Manufacturing special rate 4. GT = General taxable GT defaults, if user leaves blank 18

19 P-Card Technical Tax Configuration (Cont.) III. Tax amount must be keyed by P-card holder, if tax amount sent by bank was left blank or zero. If receipt shows no tax paid, then 0.00 must be keyed. IV. Users must select the appropriate tax code at the line level, during the monthly allocation to the GL account. A. Some accounts are pre-set with exclusively exempt or taxable settings; TC has no impact. B. Automated validation: If taxable with 0.00 in sales tax amount, a use tax will be accrued 1. Use tax based on cardholder-assigned location 19

20 P-Card Technical Tax Configuration (Cont.) C. Unsatisfactory level of compliance with user tax coding 1. Encourage behavior modification, but it s difficult to monitor and change since so often they wait until the last minute, have many transactions, do not keep receipts handy and do not feel the sting of the tax accrual D. Key point: If merchant/bank does not capture tax [Level 1], a high burden is created on the user, and highrisk tax will not be captured in program. Even if customized, it s difficult to enforce appropriate tax code selection. 20

21 Georgia-Pacific Procurement Initiative, Procure To Pay I. Efficiency, economy-of-scale centralization, multi-year effort II. Objectives for cost containment are not congruent with sales and use compliance exposure limitation. A. PO => ERS (evaluated receipt settlement) B. Other/non-PO => P-card 21

22 Georgia-Pacific Procurement Initiative, Procure To Pay (Cont.) III. Both are fraught with tax complications. A. ERS: Facilitated by direct pay permit, but we only have ~half of facilities on direct pay B. P-card: Only 25% Level II or III, hence burden is on user; often falls short IV. Increase in P-card expectancy enterprise-wide and dollarwise. V. Key point: Procurement direction can exacerbate sales and use tax difficulties. Be a part of that team; prepare economic response/justification for tax customization, including tax packages. 22

23 Tax Solution Consideration I. Procurement company we could not get traction on this A. All purchases exempt for resale; recognize tax when issued from procurement company to facility, and selfassess B. Would help P-card exposure to pay tax to vendor and self-assess use tax due to lack of tax-paid information C. Shortcoming: Vendors that are either not notified of procurement card or aren t sophisticated enough to recognize and accommodate D. Requires corporate/operational buy-in and structure 1. Up-front significant cost and timetable II. Better bank incentive offered to merchant 23

24 Tax Solution Consideration (Cont.) III. Effective post-pay analysis to spot transactions with suspicious tax exposure A. Accrued use tax, but suspect tax was paid B. Out-of-state vendors with no tax accrued C. Tax codes inappropriate for spend type, based on vendor and spend type D. Incorporated more P-card attributes in our TDW to post-pay analyze, including cardholder, merchant, MCC description, spend, account number 1. Planning to provide data to controllers for their post-process (with use tax accrual info) review IV. Key point: Plan ahead; be part of procurement initiatives/team and be proactive in determining and pursuing a tax exposure minimization plan 24