everything ap needs to know - amazon web services...everything ap needs to know about today’s...

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 9/9/2016

Everything AP Needs to Know

about Today’s Sales and Use Tax

Challenges

October 25, 2016

Diane L. Yetter

YETTER – tax meets technology

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 2 9/9/2016

Overview • Sales and use tax determination and accrual is a

key task that needs to be part of the accounts

payable group

• Validation of the taxes charged by vendors prior

to payment ensures the most accuracy

• Appropriate communication between the buyer

and seller related to tax results in better

relationships and reduced risks


Overview • Accounts Payable personnel are generally not

tax professionals and don’t have the

understanding of the tax issues faced by the

company

• AP should be able to focus on timely and

accurately processing vendor invoices

• Coordination of tax determination with

purchasing can assist AP with validating taxes

on invoices


GENERAL ISSUES


General Issues • Involvement of the tax department in these

programs will reduce risk to the organization as

a whole and add assurance that all benefits of

the process change can be recognized

• When entering into electronic process with your

business partners, it is a best practice to enter

into formal agreements that detail tax

requirements of the buyer and tax obligations of

the seller


General Issues (cont.) • Some of the items that should be addressed in these

agreements include:

– Taxability of goods and services from the vendor’s perspective

with agreement by the purchaser

– Discount terms

– The supplier’s sales tax registration numbers at the state and

local levels

– Requirement that the supplier communicate changes to its sales

tax registrations to the purchaser on a timely basis

– Method for calculation and payment of sales tax

– An agreement by the purchaser and supplier to cooperate in the

event of a tax audit


General Issues (cont.) • Direct Pay authority (permits purchaser to remit

tax directly to state) simplifies many of these

issues where permitted by the state

• Exemption Certificates should be timely provided

as part of the contracting process

• Consideration of automated tax determination,

validation and accrual processes and tools can

provide significant benefits to the organization


Taxability Determination • Does the company have nexus in the state of delivery/use?

– Where do you have people – employees and independent agents?

– Where do you have property – your own locations and 3rd party locations?

• What is purchased?

– Tangible vs. Real

– Digital Goods

– Services


Taxability Determination Challenges • Where it is used?

– Physical Delivery

– Bulk Redistribution

– Drop shipments

• How it is used? Is there an exemption that applies?

– Resale

– Manufacturing

– R&D


NEXUS & FEDERAL

LEGISLATION


Nexus • Businesses are subject to tax on items it buys in

jurisdictions where it maintains a presence

• Traditional nexus has been based on temporary

or permanent presence of people or property

• Changes have resulted in nexus based on “click-

through”, affiliate, economic and marketplace

activities


Federal Legislation • Marketplace Fairness Act of 2015 (S. 698)

– On March 10, 2015, a bipartisan group of senators

introduced the Marketplace Fairness Act of 2015.

– If passed, the Marketplace Fairness Act of 2015

would authorize states meeting certain requirements

to require remote sellers that do not meet a "small

seller exception" to collect their state and local sales

and use taxes.

– This bill is very similar to 2013 proposed legislation

which was passed by the Senate.


Federal Legislation (cont.) • On June 15, 2015, Representative Jason Chaffetz (R-

UT) introduced his version of remote seller legislation –

the Remote Transactions Parity Act of 2015 (H.R. 2775).

– RTPA retains many of the features of the MFA and it

adds protections for remote sellers and certified

software providers.

– Small seller exception starts at $10M, then $5M, then

$1M then none after 4 years

– Small sellers doesn’t apply to sellers using an

electronic marketplace


Federal Legislation (cont.) • Remote Transactions Parity Act of 2015 (H.R.

2775).

– Non SST states can’t impose remote seller collection

until multiple service providers are certified that are

multi-state certified

– No audits for remote sellers less than $5M unless

fraud and no contingent fee audits


Federal Legislation (cont.) • No Regulation Without Representation Act of 2016 (H.R.

5893)

– Introduced by Rep. Jim Sensenbrenner (R-WI) on July 14,

2016

– Would codify the physical presence requirement

established by Quill

– Would define physical presence, creating a de

minimis threshold, and would significantly limit existing

state efforts to expand the collection requirements of

remote sellers and overturn Quill

– The bill would be effective as of January 1, 2017


Federal Legislation (cont.) • Online Sales Simplification Act (OSSA)

– Rep. Goodlatte released draft alternative legislation on August

25, 2016, but has not yet introduced it

– Would impose a hybrid-origin based tax where the seller would

collect tax on all remote sales using the seller’s state taxability

rules but the customer’s state rate which would be a single rate

per state

– Tax remitted along with reports by state to the seller’s state if

participate in the clearinghouse

– Seller’s state is deemed to be the state where the seller has the

most employees


STATE NEXUS ACTIVITIES


Click-Through Nexus: Enacted and Proposed Legislation


Affiliate Nexus: Enacted and Proposed Legislation


Economic Nexus: Enacted and Proposed Legislation


USE TAX AUTOMATION


Overview • Accounts Payable automation efforts

should include tax impacts

– Purchasing Cards

– ERS

– Automated Data Feeds

– Procurement Companies


P-CARDS


P-Card Definition • Procurement cards (P-Cards) are corporate charge

cards issued to authorized employees of a business

• They provide unique sales and use tax challenges to the

AP practitioner

– Tax adjustments are unlikely since the amount has already been

“paid”

– Issuance of exemption certificates at point of sale or in advance

as part of purchaser profile

– Availability of detailed documentation


Challenges with P-Cards • Sales and use tax auditors often focus on

p-card transactions due to the high volume

and lack of documentation

– Sampling and projection methodology can

result in significant audit assessments for low

dollar transactions


Challenges with P-Cards (cont.) • Problem areas that can arise with

incomplete record submission

– A lack of detailed invoices/receipts showing

what was purchased and the amount of tax

– Missing “ship to” and “ship from” information

on invoices/receipts


Challenges with P-Cards (cont.) • It is important to enforce record

submission policies for any employees

using p-cards.

– Involve internal audit or p-card administrator

to ensure appropriate use of cards, proper

reconciliation and accounting and record

submission


AUTO-PAY/ERS


ERS Definition • Evaluated Receipts Settlement (ERS) is a payment

method designed to eliminate the need for a supplier to

provide an invoice to the customer

• ERS payments are calculated based on the quantity

received by the customer times the unit price on the

purchase order

• In an ERS transaction, the vendor does not issue an

invoice.

• The customer must determine the tax to be paid to the

vendor


Challenges with ERS • For companies using an ERS process, it is vital that

purchasers know the vendor’s tax nexus profile

• Purchasers should maintain the taxability jurisdictions of

the supplier

– Purchasers need to be able to calculate the correct amount of

sales tax on goods received as if they were the vendor

• Once the tax is calculated, the purchaser should remit

the sales tax to the vendor for states where the vendor is

registered as the vendor is liable to remit the tax to the

state


Challenges with ERS (cont.) • Note that purchasers should not remit

sales tax to the vendor for jurisdictions

where the vendor is not registered to

collect and remit sales tax. In these

cases, the purchaser must accrue and pay

use tax on the taxable purchases.


Challenges with ERS (cont.) • Accounts Payable processes must be able

to differentiate between registered and

non registered vendors by state of delivery

• Posting rules must be able to appropriately

post the vendor remitted tax to the vendor

payable account but accrued use tax to

the tax payable account


AUTOMATED DATA FEEDS


Challenges with Automated Data Feeds

• Many AP departments are working with vendors

to receive data files in lieu of individual invoices

in order to minimize data entry time and errors

• These data feeds typically are used for high

volume vendors

• These vendors could represent transactions that

are not sales tax relevant transactions such as

telecommunication, travel and benefits


Challenges with Automated Data Feeds (cont.)

• The AP department needs to ensure that key data

elements needed to determine taxability are included in

automated data feeds

– Line level data from invoices, not just the total purchase amount

– Information related to the items purchased such as material

numbers or material groups

– Tax codes and the amount of tax charged should be included for

each transaction

– Ancillary or header items like freight need to be identified

separately


PROCUREMENT COMPANIES


Procurement Companies • Establishing Procurement Companies to acquire

goods and services on behalf of a corporate

family can result in overall spend savings and

provide spend visibility benefits

• The creation of this type of entity must have

other business benefits than tax reduction


Procurement Companies • Procurement Companies can result in reduced

tax liability depending on the location and

structure of the company

• Procurement companies can result in time value

of money benefits due to the delayed payment of

taxes


Procurement Companies • Establishment of the procurement company

needs to include evaluation of nexus and where

the company will register to collect sales tax

• Evaluation of use tax accrual processes of the

operating companies needs to be included in the

evaluation


Summary • The growth of these processes continues as AP

leadership tries to minimize manual entry and improve

efficiencies in their department

• However, if the sales and use tax requirements are

ignored, any savings generated by AP will be eliminated

through sales and use tax audit assessment

– The average sales and use tax rate is now over 9%

– Ignorance of these issues could result in costs that could exceed

the savings


Sales & Use Tax Whitepapers • Visit http://www.salestaxinstitute.com/iofmap2016

– 5 Things to Understand About Your Nexus Footprint

– Important Concepts in Sales Tax Administration

http://www.salestaxinstitute.com/iofmap2016

http://www.salestaxinstitute.com/five-things-to-understand-nexus-whitepaper

http://www.salestaxinstitute.com/important-concepts-sales-tax-administration-whitepaper

http://www.salestaxinstitute.com/important-concepts-sales-tax-administration-whitepaper


QUESTIONS


Contact Information Diane L. Yetter

YETTER - tax meets technology

www.yettertax.com

[email protected]

(312) 701-1800, ext. 2

@YetterTax, @SalesTaxInst

Yettertax, Salestaxinstitute

/company/sales-tax-institute

everything ap needs to know - amazon web services...everything ap needs to know about today’s...

Documents