Sales Tax Audit Survival Guide

Transcription

1 Sales Tax Audit Survival Guide

2 Agenda Webinar will last one hour One CPE credit available Ask a question any time

3 Who Are We? Founded in 1992 Registered CPA firm State & local taxes only Former state auditors & other professionals Consult in all states & Canada

4 Poll Question

5 Andrew H. Johnson,

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7 General Tax Concepts Differences between sales and use tax: Sales tax applies to transactions wholly within a state Use tax applies to cross border transactions Different exemptions for use tax Local tax

8 Tangible Personal Property (TPP) Fundamentals

9 Only CERTAIN services are taxable

10 How States Find You Four basic classifications of companies under audit: 1. Large, multi-state, audited every three years 2. Red flags large gross sales, non-taxable sales, fluctuations, non-filers 3. Prior audit deficiencies 4. Random *Leads Auditors, leads, informants

11 Notification letter Managed audit possible? Why it could be good for you Audit

12 Sampling Issues Carefully evaluate sample method o Block sample, statistical sample, stratified Difficult to change later Tip: watch out for samples that o Are not representative of the population o Have extraordinary purchases o Also, make sure to address how to treat credits in the sample

13 Poll Question

14 Fieldwork Begins

15 Setting Parameters Contact Person is key Understand tax law & policy Understand your business Facilitate information gathering Maintains message consistency Review list of errors and fix quickly

16 Setting Parameters Auditor letter Office policies Office hours Request a copy of all docs auditor makes

17 Working with the Auditor FAQ: what s the best strategy for working with the auditor? Don t go overboard either way Be assertive with things that matter

18 Fixed assets Expenses Use tax accruals Sales tax returns Federal tax return What will auditors want to review?

19 Sales Resale and exemption certificates o Low hanging fruit o Inflate assessments What will auditors want to review?

20 Communicate Did your vendors: Pay through audit? Did your customers: Pay through audit? Remit as use tax? Have an exemption certificate?

21 Exemption Certificates

22 Exemption Certificates Are Low-Hanging Fruit

23 Credits & Refunds Auditors don t automatically look for refunds Most auditors consider credits the taxpayer s responsibility You should review your purchases to determine if you overpaid tax during the audit period Deficiency interest is higher than credit interest

24 Outsourced Refund Review Second set of eyes Great tool anytime, but especially after notice of audit or during the audit Looking at potential exposure as well as missed credits and overpayments

25 Auditor Negotiations Discuss with auditor what has been found and why Request copy of law for items that you do not agree with or understand TIP - Extraordinary items may be removed from the sample

26 What If I Don t Agree with the Audit?

27 The Appeals Process Exit conference with auditor Meeting with auditor supervisor or manager Independent audit review Official protest Mediation Administrative hearing

28 Penalty & Interest Waiver Interest waiver rare o Extraordinary delay o Written documentation of erroneous advice Penalty waiver not as rare o First audit o Tax collected not remitted o On-time filing

29 Statute Waiver What should you do if an auditor asks for a statute waiver?

30 POP QUIZ

31 What Should You Do? Perform Self Audit Appeals Process Penalty Waiver Pre-audit Mid-audit Post-audit Certificates! Look for Refunds

32 If You Don t Have the Time or Resources to Do a Self Audit We have: A rates database Sampling expertise & software The necessary tax experience The time Relationships with the state More cost effective for PJCo to do this for you

33 Important Points Under Audit Ok to take aggressive positions Not Under Audit Be conservative Aggressive positions can lead to the greatest tragedy in sales tax

34 The Greatest Tragedy in Sales Tax Paying tax, plus penalty and interest, out of your own pocket that you could have collected at the time of the transaction. Common Mistake

35 Not Currently Under Audit What should you do? Nexus Refund review Use tax accrual process Exemption and resale certificate management

36 How do states find you? Auditing your customers Information sharing with other states Special task forces Leads o Former employees o Competitors

37 Exemption & Resale Certificates Have a system in place prior to audits Be proactive in acquiring certificates Consider outsourcing

38 Use Tax Accrual Process Out-of-state purchases generally will not have tax charged, auditors know this, can be large dollars An automated system may be needed when there are many transactions to be accrued

39 Five Costliest Mistakes Resale and exemption certificates invalid or missing Missing invoices Audit rights and remedies not known Auditor negotiation mishandled Use tax not accrued

40 The Document You Should Not Give an Auditor at the Start of the Audit

41 PeisnerJohnson.com Webinars SALTsource newsletter Blog Charts and white papers

42 @PeisnerJohnson #PJCo

43 How Can We Help You? State tax refund reviews State tax audit defense Text Nexus determination and mitigation Compliance services

44 CPE Credit GoTo Webinar control panel Follow up

45 Webinar Survey

46 Avalara s capabilities continue to grow Improving Technology Added support for Lat/Long, new REST API, UPC taxability, and high-availability cloud deployment Expanding Integration Hundreds of integrations on all major commerce platforms Avalara Services Expanded offering to customers with related applications Making sales tax less taxing.

47 Let Avalara s suite of products be your in-house tax expert Never sleeps Never vacations Extremely accurate Incredible tax expertise Allows you to focus on growing your business, not calculating tax Starting salary $99 per month Making sales tax less taxing.

48 About Avalara Avalara provides an end to end sales tax compliance model via automation. Instead of researching rates, building tax tables and implementing tax processes, companies simply install a software connector that links their accounting and EPR system to Avalara s web service. As a cloud software, it continuously updates tax rates, rules and boundaries automatically. Making sales tax less taxing.