sales & use tax: a different approach
TRANSCRIPT
6/24/2015
SALES & USE TAX:A DIFFERENT APPROACH
Presented by:Jason Skrinak, PrincipalMichael Eby, Manager
INTRODUCTIONS
Jason Skrinak, CPA• Principal of State and Local Taxes• Represents the taxpayer in tax controversies;
reviewing business operations to determine potential opportunities or deficiencies; seeking potential refund opportunities for the taxpayer
• Close working relationships with various members of PA’s Department of Revenue
Michael Eby, CPA• Manager working in the State and Local
Tax sector • Tax compliance; managing sales and use
tax reviews; negotiating agreements with tax jurisdictions; reviewing and implementing entity restructuring plans; representing clients in the tax appeal process
•Why should sales & use tax issues be an important thing to consider for almost all businesses?• The basics in complying with sales & use tax requirements.• Procedures for addressing notices, audits, and appeals.• “Best practices” discussion: What can a taxpayer do to be proactive?• Opportunities to save!
AGENDA
• It’s audited more frequently than any other tax type by jurisdictions across the country. • Unlike income tax, a mistake made in handling sales tax could lead to your
business having to pay for someone else’s tax liability.• As a “trust fund” tax, corporate officers of the company could be held
personally responsible for significant sales tax liabilities.• If your company is not taking advantages of available exemptions and
exclusions, you will be at a competitive disadvantage in the marketplace.
WHY SHOULD SALES & USE TAX BE IMPORTANT FOR ALMOST ALL BUSINESSES?
• Properly register to collect sales tax in the jurisdictions you do business in‒ Form PA-100‒ Obtain Sales Tax License Number‒ Display license at each respective place of business• Properly document sales to customers
‒ Prices cannot state “sales tax included” in PA‒ Ensure proper state’s tax is collected
THE BASICS - SALES TAX
• Report sales tax collected and remit‒ Filing frequencies can be annually, semi-annually, quarterly, monthly, or even
twice a month‒ 1% vendor discount in PA
THE BASICS - SALES TAX (CONTINUED)
• Semi-annual returns due August 20th and February 20th for liabilities less than $300 annually
• Quarterly returns due the 20th of the month following the quarter for annual liabilities between $300 annually and $600 quarterly
• Monthly returns due the 20th of the following month for liabilities between $600-$25,000 a quarter
• Monthly prepayments are required when tax liability is greater than $25,000 quarter - due the 20th day in the month in which tax is collected.
THE BASICS - PENNSYLVANIA SALES TAX FILING FREQUENCIES
• What is use tax?‒ The responsibility of the purchaser or “user”‒ Corresponds with sales tax rate• Determine if use tax is due on your purchases when:
‒ No sales tax is charged‒ The incorrect rate is charged‒ If you ultimately use your purchase in a different state from the one in which
you purchased it
THE BASICS - USE TAX
• Use tax is remitted on the same return as the sales tax in most states‒ Separate reports are available for businesses that do not collect sales tax‒ PA has use tax line on PA 40 (individual return)
THE BASICS - USE TAX (CONTINUED)
• Business Activity Questionnaires (BAQ’s)‒ Have proper individual at company complete‒ Request professional assistance to review BAQ prior to mailing back
• Voluntary Use Tax Compliance Program‒ Department of Revenue initiative to educate taxpayers‒ Notices sent out to businesses not registered to remit use tax‒ DOR desk audits coming soon
PROCEDURES - WHEN THE STATE COMES KNOCKING…
• Initiated by DOR via “Notice of Audit”‒ Type of tax‒ Tax period‒ Name of auditor• Preliminary call to schedule the audit• Audit commencement meeting
‒ Discuss procedures and timing (sample periods, etc.)‒ Address taxpayer concerns
PROCEDURES - PENNSYLVANIA AUDIT PROCESS
• Provide information requested by auditor• Proposed audit assessment from auditor• Closing audit meeting to discuss final assessment and report
PROCEDURES - PENNSYLVANIA AUDIT PROCESS (CONTINUED)
• Vendor charges the wrong state’s tax or rate (including local)• No tax on delivery charge for taxable item• Inconsistent use tax reporting (i.e. only accruing some purchases from a
certain vendor)• Poorly worded intercompany agreements or invoices• Unsupported positions (ex. no electric study)
PROCEDURES - WHAT IS THE AUDITOR LOOKING FOR?
• Missing or incorrect exemption certificates‒ A unit certificate being accepted for all transactions‒ An exemption that the auditor determines you should have known was not
applicable for the purchaser • Deficiencies from a prior audit
PROCEDURES - WHAT IS THE AUDITOR LOOKING FOR? (CONTINUED)
• If using a 3rd party representative, have all communication with the auditor directed through the 3rd party• Make sure the auditor is comfortable, but not too comfortable• Look for potential credits (discussed further)
PROCEDURES - WHAT TO DO DURING THE AUDIT?
• Carefully review preliminary assessment‒ If you know your customer or vendor was already audited and paid the tax, alert the
auditor‒ Purchased product was shipped to an out of state location not identified on the invoice‒ Obtain exemption certificates from customers (sometimes permitted by the auditor)‒ Provide additional clarification or evidence• Request penalty abatement
PROCEDURES - WHAT TO DO DURING THE AUDIT? (CONTINUED)
• Board of Appeals‒ “Black & white”‒ Administered by DOR‒ Compromise offers accepted‒ Informal hearing with hearing officer
PROCEDURES - AFTER THE AUDIT
• Board of Finance & Revenue‒ “Some gray”‒ Administered by the Treasury‒ Compromise offers negotiated with DOR General Counsel‒ Formal hearing before Board• Commonwealth Court
‒ “All gray”‒ Administered by Attorney General‒ Over 95% of cases are compromised
PROCEDURES - AFTER THE AUDIT (CONTINUED)
• Be proactive for uncertain positions‒ DOR private letter rulings‒ Consult 3rd party opinions‒ Document statement of position• Exemption certificates
‒ Ensure there is a good procedure in place for maintain and identifying which exemption certificate corresponds to which invoice
‒ Request updated blanket exemption certificates every 3-4 years
“BEST PRACTICES” IN SALES & USE TAX
• Doing business occasionally in other states‒ Consider if nexus has been established‒ If nexus has been established, how far back does this occur ‒ Look into the Voluntary Disclosure Program (VDA) or Tax Amnesty
• Use 3rd party to maintain anonymity• Reduce lookback period and have penalties abated
“BEST PRACTICES” IN SALES & USE TAX (CONTINUED)
• Don’t respond to a customer/vendor that is being audited without consulting with your sales and use tax experts
• Clearly identify use tax on invoices and keep supporting documents for use tax return
“BEST PRACTICES” IN SALES & USE TAX (CONTINUED)
• Key exemptions and exclusions:‒ Manufacturing and processing‒ Trucking operations‒ Construction contracts‒ Custom software/computer services‒ “Cloud computing” used outside PA regardless if the server is located in PA‒ Professional services‒ Landscaping and snow removal
OPPORTUNITIES TO SAVE
• Key exemptions and exclusions (continued)‒ Employee cost of help supply and building cleaning services‒ Non-profit and government purchases‒ “Special resale”‒ Bulk sale‒ Bad debt expense
OPPORTUNITIES TO SAVE (CONTINUED)
• It is difficult to master sales & use tax without consistent experience• Sales & use tax laws are constantly changing• “Fresh set of eyes” can bring a different perspective• A resource to bounce issues off of• Key contacts with the taxing jurisdictions
YOU DON’T HAVE TO DEAL WITH SALES & USE TAX ALONE!
• No cost preliminary review• SALT group comes on site to review one year’s worth of purchase invoices, intercompany
agreements, prior audits, etc.• Brief meeting with management to discuss business operations• We will identify some key exposure items in addition to potential refund opportunities
and provide those to you• We would provide recommendations based on our findings• There is always value in a sales tax review, even if a refund on previous purchases is not
pursued
WHAT DOES A SALES & USE TAX REVIEW ENTAIL?
WHY MCKONLY & ASBURY’S STATE & LOCAL PRACTICE IS DIFFERENT?
6/24/2015
6/24/2015