Reverse Audits for Corporate Taxpayers: Best Practices for Identifying Sales Tax Refunds

Transcription

1 Presenting a live 110-minute teleconference with interactive Q&A Reverse Audits for Corporate Taxpayers: Best Practices for Identifying Sales Tax Refunds THURSDAY, DECEMBER 13, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Mark Loyd, Partner, Bingham Greenebaum Doll, Louisville, Ky. Mike Dillon, President, Dillon Tax Consulting, Annapolis, Md. 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.

2 Tips for Optimal Quality Sound Quality For best sound quality, we recommend that you listen via the telephone by dialing and entering your PIN when prompted, and view the presentation slides online. If you have any difficulties during the call, press *0 for assistance. You may also send us a chat or sound@straffordpub.com immediately so we can address the problem. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

3 Continuing Education Credits FOR LIVE EVENT ONLY Attendees must stay on the line throughout the program, including the Q & A session, in order to qualify for a full continuing education credits. Strafford is required to monitor attendance. Please refer to the instructions ed to the registrant for additional information. If you have any questions, please contact Customer Service at ext. 10.

4 Program Materials If you have not printed the conference materials for this program, please complete the following steps: Click on the + sign next to Conference Materials in the middle of the lefthand column on your screen. Click on the tab labeled Handouts that appears, and there you will see a PDF of the slides and the Official Record of Attendance for today's program. Double-click on the PDF and a separate page will open. Print the slides by clicking on the printer icon.

5 Reverse Audits for Corporate Taxpayers: Best Practices for Identifying Sales Tax Refunds Seminar Dec. 13, 2012 Mark Loyd, Bingham Greenebaum Doll Mike Dillon, Dillon Tax Consulting

6 Today s Program Goals For The Reverse Audit [Mark Loyd] Slide 8 Slide 14 Indications Of Possible Tax Overpayments [Mark Loyd and Mike Dillon] Slide 15 Slide 18 Safeguards Against Future Tax Overpayments [Mike Dillon] Slide 19 Slide 23 Negotiating With, Managing Reverse Audit Outsourcing Firm [Mike Dillon and Mark Loyd] Slide 24 Slide 27

7 Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

8 Mark Loyd, Bingham Greenebaum Doll GOALS FOR THE REVERSE AUDIT

9 Primary Goal For The Reverse Sales Tax Audit 9 O B TA I N A RE F U N D OR CR E DIT OF SA L E S A N D USE TAX Motivations : Refund f o r refund s s a ke Manage s tate DOR audit a s s essment Improve o ngoing c o m pliance Scrutiny: Primarily o n tax -paid transactions C o m pare with state DOR audit: Scrutiny o n non - tax-paid transactions

10 Primary Goal For The Reverse Sales Tax Audit (Cont.) O B TA I N A R E F U N D OR C R E D I T OF S A L E S AND U SE TAX ( C O N T.) A p p r o a c h e s : C o m p l i a n c e : F o c u s o n a l l s a l e / p u r c h a s e t r a n s a c t i o n s Ensure compliance with tax matrix (tax-paid and non-tax-paid) Improve error rate R e s u l t s - o r i e n t e d : F o c u s o n r e f u n d / c r e d i t H i g h l e v e l : F o c u s o n t a x - p a i d i t e m s w i t h m o s t p o t e n t i a l f o r r e f u n d / c r e d i t Ta r g e t e d : F o c u s o n s p e c i f i c i s s u e ( s ) 10

11 Logistical Goals Of Reverse Tax Audit Identify transactions on which tax was potentially o verpaid, u sing efficient m ethodologies A pproaches to examining s a les/purchases: Examine all Sample Review group of like suspect Items Group homogeneous transactions : PO, invoice, G/L account, vendor, etc. 11

12 Logistical Goals Of Reverse Tax Audit (Cont.) I d e n t i f y e r r o r s Error Cause O f Error Resolution Tax paid or not paid in error No tax matrix 12 Tax matrix not used Tax matrix misunderstood Exemption read too narrowly or broadly Create tax matrix Redistribute tax matrix; more training Update/revise tax matrix; more training or re-training Update tax matrix

13 Logistical Goals Of Reverse Tax Audit (Cont.) E v a l u a t e s a l e s / u s e tax position Position Support Not taxable Extra-jurisdictional; subject matter not taxed 13 Exempt Credit Property; transaction; entity Economic development; incentivize action (e.g., recycling) A l s o, c o n f i r m d e t e r m i n a t i o n s that tax is d u e

14 Logistical Goals Of Reverse Tax Audit (Cont.) A s s emble documentation demonstrating tax was o verpaid o n transactions Invoices Alternatives: Purchase orders, contracts Description o f property, process o r use Graphic i llustration (e.g., pictures o r videos) o f property, process o r use 14

15 Mark Loyd, Bingham Greenebaum Doll Mike Dillon, Dillon Tax Consulting INDICATIONS OF POSSIBLE TAX OVERPAYMENTS

16 Evidence And Indications Of Possible Tax Overpayments F o c u s o n t a x - p a i d s a l e / p u r c h a s e transactions Ta x a c c r u a l a n d e x p e n s e G / L a c c o u n t s List of tax-paid items from financial systems with relevant available data Financial account information: G/L account, business unit, cost center, vendor, etc. G/L vs. procurement cards Sales tax or use tax paid? Direct pay permit? Ta x m a t r i x S a l e s a n d u s e t a x r e t u r n s 16

17 Evidence And Indications Of Possible Tax Overpayments (Cont.) 17 L a c k o f i nternal tax f unction f o c used o n sales tax L a c k o f a use tax a c c rual process No internal review of purchases for proper tax Application by vendor Vendor incentive and A/P incentive Potential for exposure as well State s a les tax a udit yields no c hange.

18 Evidence And Indications Of Possible Tax Overpayments (Cont.) 18 Electronically d elivered purchases Rapid expansion o f a c tivities into new s tates with which c o m p a ny lacks s a les tax experience Decentralized purchasing C o m plex purchase, delivery a nd use a c tivities ( i ncluding d rop s hipments )

19 Mike Dillon, Dillon Tax Consulting SAFEGUARDS AGAINST FUTURE TAX OVERPAYMENTS

20 Implementing Safeguards Against Future Overpayments 20 Use tax a c c rual process Internal review of purchases for proper tax application by vendor Vendor/account scrub Sales a nd use tax m a trix Manual or automated process Consistency and uniformity

21 Implementing Safeguards Against Future Overpayments (Cont.) 21 D e d i c a t e d A / P s t a f f a n d d e p a r t m e n t a l i n c e n t i v e p r o g r a m f o r a c c u r a c y Inaccurate reliance on human knowledge and manual processing Staff turnover Inaccurate recordkeeping in turn attracts tax auditors. D e d i c a t e d c o m p l i a n c e s t a f f a n d u n i f o r m p r o c e s s e s A/P must apply tax laws and keep up with the constantly changing product taxability rules. Incentive is expedient processing, not compliance.

22 Implementing Safeguards Against Future Overpayments (Cont.) 22 Regularly review purchase a c c o unts Large purchase accounts Special purchase accounts Specific vendors Effective rate a g reements Simplify use tax compliance Take sales tax application out of hands of vendors

23 Implementing Safeguards Against Future Overpayments (Cont.) 23 Sales and use tax c o m pliance s o f tware Automated tax decision, rating and return preparation Keep accounting personnel focused on higher-value work Seamless integration with accounting/billing Data archived for audit purposes

24 Mike Dillon, Dillon Tax Consulting Mark Loyd, Bingham Greenebaum Doll NEGOTIATING WITH, MANAGING REVERSE AUDIT OUTSOURCING FIRM

25 Negotiating With And Managing A Reverse Audit Outsourcing Firm (Cont.) 25 Approach Compliance Refund/credit High level Targeted Options Contingency fee By the hour Flat fee Hybrid

26 Negotiating With And Managing A Reverse Audit Outsourcing Firm 26 Contingent fees A lternative fee s tructures Hybrid of hourly or fixed, and percentage Strata with different percentages for increased results F ee a pplication to historical results o nly, not prospective r esults

27 Negotiating With And Managing A Reverse Audit Outsourcing Firm (Cont.) 27 Do fees a pply to refunds realized? Recognized? C redits taken? Wi ll firm i dentify potential exposure? Do you want to file a refund? Will the claim invite audit?