Workshop F. Sales/Use Tax: Audits & Best Practices with Exemption Certificate Management. Tuesday, January 29, :45 p.m. to 2:45 p.m.

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1 28th Annual Tuesday & Wednesday, January 29 30, 2019 Hya Regency Columbus, Columbus, Ohio Workshop F Sales/Use Tax: Audits & Best Practices with Exemption Certificate Management Tuesday, January 29, :45 p.m. to 2:45 p.m.

2 Biographical Information Elizabeth A. Downey, Sales and Use Tax Specialist, ClarkDietrich Building Systems 9050 Centre Pointe Dr Ste 400 West Chester, OH Fax Elizabeth is a sales and use tax professional with over 35+ years multi-state experience in the manufacturing industry. Elizabeth began her sales and use experience with Avery Dennison Corporation. Elizabeth has done compliance, research, exemption certificates and use tax analysis for all 45 states with a sales tax. In addition, to saving employers millions of dollars Elizabeth has audit experience with California, Florida and Illinois to name a few with minimal to no adjustments. Elizabeth is currently a Sales and Use Tax Specialist with ClarkDietrich Building Systems location in West Chester, OH. Tony Chavez, Principal, Ryan LLC N. Scottsdale Rd. Ste. 650, Scottsdale, AZ tony.chavez@ryan.com Mr. Chavez is a Principal with Ryan in their Scottsdale office and specializes in the evaluation and implementation of third-party automated transaction tax software (e.g., ADP Taxware, Sabrix, and Vertex); design and implementation of best practice improvements to automated tax decision and reporting processes; and design and development of custom tax interfaces to thirdparty automated tax solutions. He has experience in tax processing with various ERPs, including Oracle, PeopleSoft, and SAP. Previously, Tony served as the Director of Tax Technology for Ryan in their Boston office and Vice President, Enterprise Solutions Group, ADP Taxware. Mr. Chavez lectures on various tax topics for Ryan clients. Additionally, he has appeared as a speaker for the following organizations: SAP Financials Conference, Taxware Regional Seminars, Taxware Summits 10 and 11 and Taxware Webinars. From University of Southern California, he received both is Master of Science Degree in Business Taxation and Bachelor of Science Degree in Accounting. Jason Parish, Tax Senior Manager, Plante Moran PLLC 10 S. Riverside Plaza, Chicago, IL jason.parish@plantemoran.com A senior manager in Plante Moran s State and Local Tax (SALT) Practice, Jason consults with service, manufacturing, and technology companies on issues such as nexus, apportionment, sales taxability and voluntary disclosure agreements. Jason also works with Plante Moran s transaction advisory team on SALT issues related to transactions, structuring and due diligence. Jason is the SALT expert business owners need in their corner, evaluating and managing income and sales tax liability in multiple jurisdictions. He takes the time to listen and understand the business s activities. With an understanding that state taxes are one of the most complex areas of the law, Jason not only explains the intricacies of various concepts and how these concepts are defined in each state, but he also drives home what those laws mean to the business s bottom line. He works with businesses to help identify opportunities to lower tax liabilities or get into compliance so owners and officers can rest easy at the end of the day. Jason graduated with a Bachelor of Science in Accounting from Elmhurst College and a Master of Science in Taxation from DePaul University. He is a Certified Public Accountant and a member of the Illinois CPA Society, American Institute of Certified Public Accountants and the Taxpayer s Federation of Illinois.

3 Biographical Information Steven A. Dimengo, JD, CPA, MT, Shareholder Buckingham, Doolittle & Burroughs, LLC 3800 Embassy Parkway, Suite 300, Akron, OH (330) Fax: (330) Steven A. Dimengo is a shareholder in the Akron based law firm of Buckingham, Doolittle & Burroughs, LLC, serving as managing partner and chairman of the executive committee. Additionally, Steve serves as department head of the taxation section of the Business Practice Group. In the past, he has served as business practice group leader, vice president, and secretary/treasurer of the firm's board of managers. Steve concentrates his practice on Ohio sales, income and commercial activity taxes as well as transactions with federal tax implications. This includes comprehensive Ohio tax audits, appeals, and planning; sales of real property; and the acquisition/sale of businesses. Steve provides substantial representation before the Ohio Tax Commissioner, Ohio Board of Tax Appeals and the Ohio Supreme Court, as well as before the Internal Revenue Service. His primary practice comprises of consultation and representation with respect to federal, multistate and Ohio tax law matters and is consistently engaged to structure proposed transactions in a manner to obtain optimum tax minimization. Steve has been listed in Best Lawyers in America ( ); selected for inclusion in Ohio's Super Lawyers ( ) as voted by his peers; named in Best Lawyers in America "Lawyer of the Year" for Tax Law (2017); has a Martindale-Hubbell Peer Review Rating of AV Preeminent", was Corporate Chair for JDRF Akron One Walk (2017); was selected for inclusion in Ohio's Super Lawyers Business Edition for Tax Law (2014); was recipient of the Distinguished Alumni Award from the Archbishop Hoban High School Alumni Association (2013); named Akron Best Lawyers 'Tax Lawyer of the Year' (2012); listed in Super Lawyers Corporate Counsel Edition for Tax Law (2009); listed in Northern Ohio Live - Ohio's Top Lawyers (2003); listed in Inside Business Magazine as a Leading Lawyer in Northeast Ohio in Tax Law (2001); and was a recipient of the Dr. Frank L. Simonetti Distinguished Alumni Award from the University of Akron College of Business (2015). Additionally, he is a trustee of the Greater Akron Chamber of Commerce; is an Adjunct Professor at the University of Akron Master of Taxation Program (State and Local Tax); is secretary and trustee of Archbishop Hoban High School and chairman of the Archbishop Hoban High School Trust Fund. He has a past affiliation with the Ohio Tax Commissioner's Advisory Council (by appointment). He is a member of the Taxation Section of the Akron Bar Association; member of the American Bar Association; member of the Ohio State Bar Association; chair of the Taxation Section, including Sales & Use Tax Subcommittee of the Ohio State Bar Association. Steve earned his B.A., magna cum laude from The University of Akron (1983), J.D., cum laude from The University of Akron Law School (1986); M.A. from The University of Akron (1986); and is a Certified Public Accountant (since 1987). He is admitted to the Ohio Bar, U.S. District Court, and U.S. Tax Court.

4 Workshop F Sales/Use Tax Minimizing Your Pain Before, During, and After Audits and Best Practices with Exemption Certificate Management Beth Downey, Clark Dietrich Building Systems Steven Dimengo, Buckingham Doolittle & Burroughs Jason Parish, Plante Moran Tony Chavez, Ryan, LLC

5 Agenda Tips to prepare for an audit Maintaining pertinent documentation Self assessing and remitting tax Supporting non taxable sales & exempt purchases Using automation for exemption certificate management

6 Tips to Prepare for and Audit Record Retention, invoice/credit transaction, tax returns and all support documentation questioned by the auditors must be available for a period required by each state up to five years. Every audit is scheduled in advance of its actual commencement. Review the initial document request (IDR) list in advance of a conversation with the agent. Don t be afraid to push back or discuss items on the IDR (e.g. detail GL) Oversee the audit and auditor. Agreement with the auditor is reached early in the audit process as to what documents and records must be made available.

7 Tips to Prepare for and Audit Test periods are chosen and an audit methodology is picked (e.g. block sample or statistical sample, actual?) Most importantly, know your business! In a sample a percentage of error is applied to the specific items for the audit period to calculate an audit assessment. Items questioned are not assessed until the taxpayer and auditor either agree on the questioned items or agree to disagree that an assessment is justified.

8 Maintaining Pertinent Documentation All sales are taxable and require tax collection unless a valid certificate or exemption document is on file. The seller is responsible for collecting and remitting sales tax. The burden is on the customer to provide a tax exemption certificate if they are tax exempt. Without proper documentation, transactions which otherwise would be exempt from sales and use tax become fully taxable under audit.

9 Exemption Certificate example In a New York sales tax audit, Paxar Corporation was unable to procure an exemption certificate from a customer on an invoice for $12.00 (with $1.00 tax), which ended up costing Paxar over $ times the amount invoiced. The item a label sewn into a garment for resale should not have been taxed at all. However, this is the consequence of not maintaining proper documentation.

10 Tax Exemption Certificate Maintenance and Management Request tax exemption certificates at the time of the sale this should be a routine process. Review customers business status (retailer, wholesaler, manufacturer, contractor, etc.). Determine if a purchase is tax exempt and what kind of tax exemption certificate is required by state tax laws of the state the shipment is made to, what is being purchased, and how it will be used.

11 Tax Exemption Certificate Maintenance and Management Review the tax exemption certificate and make sure that it is completed in full. Your default should be to charge sales tax if you do not have a tax exemption certificate.

12 Self Assessing and Remitting Tax Run an audit view report of purchases, supplies, capex, pcard, other use tax exposure by location and filing period. Audit purchases for all locations. Determine use tax liability based on the intended use of the purchase and the tax laws of the state where the purchase was shipped. Prepare returns containing a use tax liability determined from audit of purchases for filing period.

13 Support Nontaxable Services Building Maintenance and Janitorial Service

14 Building Maintenance and Janitorial Services Great Lakes Bar Control, Inc., Ohio Supreme Court Issue: Whether inspecting and flushing draft beer lines is a taxable service? Nontaxable inspection; cleaning interpreted in context of janitorial, focusing on ordinary meaning (and not hyperliteral reading)

15 Electronic Information Services Providing access to computer equipment via telecommunications for the purpose of: (1) accessing information; or (2) storing data to be retrieved.

16 Employment Services Background Extension to perceived professional services Software Professionals, Engineers, Others EMPLOYEE LEASED EMPLOYEE

17 Employment Services Seaton Corp. (Ohio Supreme Court); nontaxable since provider managed workers schedules and directed work at job site. Parameters for utilization of one year permanent assignment exception Separate contracts? Perpetual project work? What must that graph look like?

18 Leased Employees Accel Same employees provided (hours merely reduced) No impermissible/limited purposes Career Staffing, LLC Nontaxable Fluctuating number of leased employees was allowed since it was tied to extraordinarily difficult work conditions (not seasonality or short term workload conditions)

19 Support Exemptions (Consumer)

20 Resale Transfer of title or possession for consideration

21 Resale Exemption Pi in the Sky, LLC (Ohio Supreme Court) Airplane lease lacked business purpose (i.e., economic gain) and factual/economic substance

22 Pending Cases Same Form Crown Castle (pending) Title / Possession Karvo Paving (pending) Consideration The Reds (Supreme Court)

23 Manufacturing Exemption Define scope of manufacturing operation Beginning of production End of production

24 Manufacturing Exemption Beginning of production Lafarge North America, Inc., Ohio Supreme Court Breaking slag from/at pile was commencement of production (i.e., not taxable transportation of raw materials from initial storage)

25 Packaging Material Restrains movement of enclosed contents in more than one plane of direction. Includes individual and bulk packaging

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27 Packaging Equipment Placing in package Integral part of placing in package Making package or label Labeling

28 Exemptions Transportation for hire exemption. >50% test

29 Essential Software Features for ECM Management Web based exemption certificate storage and management tool Handles communications for all the customer and vendor communications: Customer: missing certificates, expired or expiring, and incomplete / rejected Vendor: send certificates to all your vendors from the application Customers can electronically sign and submit forms for missing, incomplete, or expired certificates with their web browsers (including mobile devices). Internal validation tools for reviewing certificates. Notate reasons for rejections to be communicated back to clients who sent rejected forms. Correct form and data requirements Robust customizable reports with the ability to quickly pull audit data User defined fields

30 The picture can't be displayed. The picture can't be displayed. The picture can't be displayed. The picture can't be displayed. The picture can't be displayed. The picture can't be displayed. The picture can't be displayed. Exemption Certificate Automation Use Cases Standalone Use as a stand alone system to manage all your certs without integrating it to other solutions. E commerce Integrate to your e commerce solution. Customers can add certs during checkout and return to their carts to complete their transactions. POS Capture images of paper certificates at your retail location using any mobile device with a camera and upload them for validation and reporting. Billing System Integrate to your billing system. Synchronize your customer master and have the solution push updates to your ERP as certificate data / statuses change. Tax Engines Integrate to your tax engine(s). Have it push certificate data to the tax engine as cert statuses and related data change. Vendor Side Manage all your certificates for your vendors. Quickly and easily send certificates to all your vendors. Merge your data onto forms in our library and sign them from within the application.

31 ECM Software Deployment Considerations Master Data Contact Name, Phone Number, address Data structure (e.g. Parent / Child) Multiple Systems Sharing of customers among legal entities Define end to end work flow Policies Process Grace period Customer experience