Ohio Tax. Workshop W. Basic: Sales & Use Tax Audits Best Practices and Tips. Tuesday, January 23, :15 p.m. to 5:15 p.m.

Transcription

1 27th Annual Tuesday & Wednesday, January 23 24, 2018 Hya Regency Columbus, Columbus, Ohio Ohio Tax Workshop W Basic: Sales & Use Tax Audits Best Practices and Tips Tuesday, January 23, :15 p.m. to 5:15 p.m.

2 Biographical Information Tia Stern, Manager Sales & Use Tax, The Wendy s Company One Dave Thomas Blvd, Dublin OH FAX: tia.stern@wendys.com Tia has over twenty-five years of multi-state and Canadian VAT tax experience in the service, manufacturing, retail, construction, and most recently the QSR industry where she has been the Manager Sales & Use tax for The Wendy s Company for the past three years overseeing compliance for corporate restaurants, audits, and tax planning. Five years ago, Tia and her husband started a small franchise business in automotive interior presentation where she manages the accounting, finance and payroll functions. Tia is a member of COST, IPT and RISTAP. She is currently serving on the RISTAP planning committee for its 2018 annual conference. She is a graduate of Franklin University with a B.A in Accounting. Mandy Harvey, Senior Specialist Sales & Use Tax, The Wendy s Company One Dave Thomas Blvd, Dublin, OH Fax: mandy.harvey@wendys.com Mandy is currently a Senior Specialist in the Sales & Use Tax Department at The Wendy s Company with key responsibilities in audit management, tax planning, and M&A. Mandy has experience in the manufacturing, retail, and restaurant industries. Mandy is a member of COST and IPT. Mandy is also very active in Restaurant Industry Sales Tax Audit Professionals (RISTAP) where she has served on discussion panels for topics impacting the Food & Beverage Industry. Mandy is a graduate of Franklin University with a B.A. in Accounting. Andrew J. Donaldson, Manager Sales & Use Tax Ryan, LLC, 127 Public Square, Suite 2800, Cleveland, OH ext Fax: Andrew.Donaldson@Ryan.com Andrew Donaldson, Manager in Ryan s Transaction Tax practice, specializes in providing transaction tax consulting services to the manufacturing, public utility, and transportation industries. Mr. Donaldson has over nine years of experience in transaction tax, covering a broad range of commercial and industrial sectors, including retail, wholesale, professional services, contracting, government contracting, and manufacturing. He is a frequent speaker on various tax topics for Ryan clients and various professional organizations and is an active member of the Institute for Professionals in Taxation. Mr. Donaldson holds a Bachelor of Science Degree in Economics from The Fisher College of Business at The Ohio State University.

3 Biographical Information Mitchell A. Newmark, Partner Morrison & Foerster LLP 250 West 55th St., New York, NY (212) Fax: (212) Mitchell A. Newmark s practice is concentrated on state and local tax litigation and appeals before administrative tribunals and judicial courts around the country. He has argued successfully in tax, civil, and appellate courts. He also advises companies and individuals with respect to sophisticated transactional matters including acquisition, restructuring, planning, and asset-based financing transactions regarding all state and local taxes. Mr. Newmark has written extensively in the area of state and local taxation and is a frequent lecturer concerning state and local taxes. Mr. Newmark is admitted to practice before the United States Supreme Court; the United States Tax Court; the United States Court of Appeals, Third Circuit; and the United States District Court, District of New Jersey, as well as to three state bars. Mr. Newmark has been a member of the New Jersey Supreme Court Committee on the Tax Court since He is a recent past Chair of the Tax Section of the New Jersey Bar Association and remains a member of its Executive Committee and Executive Council. He is also a Co-Chair of the State Practice, Procedure and Liaison Committee of the Tax Section of the New Jersey Bar Association. In 2016, Mr. Newmark received the New Jersey State Bar Association Tax Section's award for outstanding contribution to the Taxation Law Section. Mr. Newmark graduated cum laude from the Widener University School of Law, where he was a board member of its law review, the Delaware Journal of Corporate Law. He also has an LL.M. in taxation from Georgetown University Law Center and an M.B.A. from Rutgers University Graduate School of Management. Prior to joining Morrison & Foerster in mid-2003, Mr. Newmark was a Deputy Attorney General of the New Jersey Attorney General's Office for six years. In that capacity, he represented the Division of Taxation in court matters and counseled the Division in connection with regulatory matters. He also represented other New Jersey agencies and bodies, including the Department of the Treasury and its Divisions of Investment and Pensions and Benefits as well as the State Investment Council and the Office of Management and Budget; and the Department of Banking and Insurance and its Divisions, as well as the Banking Advisory Board. In December 2001, he received Attorney General Certificates of Recognition for his work in a substantial and complex financial services company transaction and for his work in response to the September 11, 2001 terrorist attack.

4 Columbus, Ohio Sales & Use Tax Audit (Workshop W) Andrew Donaldson, Ryan, LLC Mitchell A. Newmark, Morrison & Foerster, LLP Tia Stern, The Wendy s Company Mandy Harvey, The Wendy s Company

5 Session Objectives Understand the basics of handling a tax audit Understand how the auditor will conduct the audit What are the best practices when handling a tax audit? 2

6 3 Basics of Handling a Tax Audit

7 Can Notify Your Company of an Audit? Most jurisdictions have the right to audit for any taxes that they administer Will generally notify by letter and/or telephone call Will contain the entity being audited The audit period The type of tax Records needed for review The audit start date Waivers 4

8 Will Be Involved with the Audit? Need to determine who the auditor(s) and the audit supervisor will be for the audit Contractor or state employee? Need to determine who will handle the audit for your company Should be one primary contact for the auditor Determine who else will need to provide information and notify them of the audit 5

9 Do the Taxing Jurisdictions Conduct Audits? To increase compliance on a going-forward basis To discover money due to the jurisdiction To refund money that was overpaid to the jurisdiction 6

10 Can Your Company Reduce the Risk of Being Audited? File all returns timely Ensure that filed returns are as correct as possible with no visible errors Make sure that amounts filed on one type of return tie to the same information on another return for the same jurisdiction Avoid large fluctuations from return to return 7

11 Will the Audit Be Conducted? Usually a start date will be included on the audit notification letter Is it negotiable? What are the considerations of moving the audit date out? Additional interest Potential of extending the period being audited Waivers 8

12 Should You Prepare for an Audit? As early as possible Once notified and agreed When the returns are filed Keep backup to the amounts filed Ongoing basis Gather and keep other pertinent information Build relationships outside of the tax department After audit notification and before the start of the audit Pull all requested information together and review prior to providing to the auditor Research the statute 9

13 Will the Audit Be Conducted? Depends upon the location and type of records that need to be reviewed? Company headquarters or other company location Consultant s office Desk Audit/Auditor s location Should the auditor be located onsite? Managed audit? 10

14 Is a Tax Audit? A jurisdiction will conduct an audit to verify that the proper amount of tax has been paid whether or not a return is required to be filed 11

15 Happens During an Audit? The auditor will generally request and review the following: Copies of returns, if applicable Detailed records that substantiate the amounts on the returns A tour of the facility Download of pertinent data 12

16 Happens During an Audit? The auditor may sample certain types of transactions: Type of samples Block Statistical Modified Statistical Other Ensure that the sample period is representative of the audit period Will a signed sampling agreement be required? Implications for overpayments/refunds? 13

17 Happens During an Audit? The auditor will provide workpapers/proposed assessments Review and determine what additional information needs to be provided to minimize the liability Review and verify the auditor s calculations, including the extrapolation of the sample Meet with auditor to provide additional information and negotiate reductions 14

18 Are Best Practices that Should Be Employed During the Course of an Audit? Negotiate an audit plan/timeline to ensure that all parties stay on track Request written IDRs from the auditor Supply only the information that is requested in the IDR Be responsive to the auditor s requests Communicate, Communicate, Communicate Don t hesitate to contact the auditor s supervisor to resolve audit issues 15

19 Are Best Practices that Should Be Employed During the Course of an Audit? Request periodic workpapers, especially towards the end of the audit Know the jurisdiction s procedures; do not miss a statutory deadline Have a sample expert review the proposed sample to ensure that the results will be representative Review for overpayments for the period being audited Consider negotiating the roll-forward of the audit to more current periods Determine items to be appealed and determine additional information that needs to be obtained 16

20 Relationship with the Auditor There is never a second opportunity to give a good first impression. Be confident Ensure data is understandable provide roadmaps Check in periodically Gain their trust 17

21 Know Your Business Business Changes Financial/Tax Software Implementations Mergers/Acquisitions Peak Periods Outliers 18

22 Information Requests What information should you disclose to an auditor? Anything the auditor requests? Requests for irrelevant information Excessive requests for information Relevant information that the auditor does not ask for? Confidential information? Internal s/correspondence? s/correspondence with attorneys? What obligations do you have to clients/customers? 19

23 Reverse Audits - Payables Identify use tax overpayments Fixed Assets vs. Expenses How to Recover? Does sample agreement discuss overpayments? How handled in audit? Cause of overpayments Data entry keying error? Work with business partners to correct Tax Decision Mapping Research and update tax matrix consider All jurisdictions 20

24 Reverse Audits - Receivables Notify customer about tax assessment Has customer self-assessed and paid? Invoice customer? Update Tax Decision Software Remove invalid exemption certificate Update product taxability 21

25 Documenting the Audit Start an Audit Diary Tool for tracking what information is requested and when provided High level view of outstanding items Maintain audit timeline Prepare Audit Memo to document findings, corrections, savings, and reserve implications Highlight areas of exposure (over/under) Document changes correcting over/under exposures Communicate issues and resolutions to leadership/business Request for reserve amount (tax, penalty, interest) Audit Log History of prior audit assessment and corrections Track savings value of Tax Department 22

26 Statute of Limitations Extensions Taxpayers should carefully considered whether to extend the statute of limitations in tax matters. Some considerations include: Age of audit period (and with it availability of proof); Nature of audit (income, sales/use, property); Number of years subject to SOL in the audit period; Prior experience with state or locality conducting audit; Novel or unique positions versus recurring issues; Jeopardy assessments; Potential impact on tax reserves 23

27 Inconsistent Enforcement or Policy In theory, every audit stands on its own. Notwithstanding, there should be some consistency in audits conducted assuming no change in the taxpayer s business and no subsequent change in the underlying law. Some suggestions: Review prior audits/protests (or pursue same with DOR from their files) for positions raised therein Where appropriate, discuss prior audits/findings with the newly assigned auditor If there is an impasse on a matter, discuss with auditor s supervisor and/or department divisional manager 24

28 Auditor s Report Set deadlines for receipt of the audit report Confirm that deadline in writing Allow sufficient time for you to review the report and respond within the statute of limitations Contact auditor if report not timely received 25

29 Auditor s Report Request the opportunity to resolve dispute before auditor finalizes Department s position on matter May request a meeting with field auditor s supervisor Might result in resolution of issues prior to administrative appeal Taxpayers should carefully scrutinize RAR to ensure that agreed adjustments have been made AND whether there is any mathematical or other errors. 26

30 Closing Agreement Ensure closing everything down Completely closes audit period If potential responsible person, closes down possibility of audit of potential responsible person. What if the Closing Agreement Contains an error? Mathematical error Missed an issue Missed an issue because the auditor did not ask/receive the relevant information 27

31 Penalties Penalties Reasonable Cause and Not Willful Neglect Ordinary Business Care Standards may vary from state to state but the principles are generally consistent Burden is on the taxpayer to prove 28

32 Penalties 29 Factors to Consider: Compliance History Exercise of Good Faith Nonrecurring or Isolated Errors Materiality of Error Establishment of Prudent Business Practices Prompt Payment of Deficient Taxes Upon Discovery Legal Basis for Noncompliance Complexity of Relevant Law Reliance of Tax Advisory Arguments that Should Be Avoided: Ignorance of the Law Mistake or Forgetfulness Time Constraints Employee Negligence or Error

33 Protests Timeliness Do not rely on the State for assurance that something can be filed late Ensure meeting protest requirements State may designate a specific form or other format requirements What information should you include? Fully detail all issues or briefly explain each item Include a statement that you reserve the right to submit additional support in the future 30

34 Protests Protest period important to review notice of assessments when received to ensure the proper protest period is identified Pros/cons of various delivery methods: Hand delivery; Certified mail (RRR); First class mail; Express carrier (P.O. Boxes); /fax 31

35 Amnesties and Voluntary Disclosure Agreements Amnesties Sporadically available Can be penalized for not participating Can lose appeal rights for participating Voluntary Disclosures Available in most States Generally require that you did not previously file Some States offer a blind application If agreement not reached, State may be able to use information disclosed in process as part of an audit or in defending any subsequent appeal of that audit Mass. AP

36 Thank You Andrew Donaldson Manager, Ryan, LLC , Mitchell A. Newmark Partner, Morrison & Foerster LLP , Tia Stern Manager Sales & Use Tax, The Wendy s Company , tia.stern@wendys.com Mandy Harvey Sr. Specialist Sales & Use Tax, The Wendy s Company , mandy.harvey@wendys.com 33

37 About This Presentation This presentation contains general information only and the respective speakers and their firms are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation. 34