Are you paying the proper amount of sales and use taxes?

by: Kevin Stedman, Sr. Tax Manager

As a business owner, paying sales or use tax has most likely become second nature as a cost of doing business.  In recent years, states looking for additional revenue sources have adopted changes that have expanded the tax base and increased the tax rate overall.

As an example, Ohio has a proposal to raise the rate .50% and to further expand the base to include some services that have never been taxed before, including cable TV subscriptions, parking, management consulting services, travel services and debt collection services.

With all the recent activity in this area, staying on top of these changes has become more important than ever.  Oftentimes the person responsible for determining what is subject to sales tax and filing the necessary tax returns may not have the time or experience to do this.  Our webinar on Wednesday, July 8th will address these as well.

And let’s face it…it’s not exactly the easiest area of tax to understand.

But before we begin…What is Sales Tax and Use Tax?

Sales Tax – Tax on the sale at retail(end user) of tangible personal property(items that are visible and take up space) and certain taxable services.

Use Tax – Tax on the storing, using, consuming, and possibly distributing tangible personal property or providing a taxable service. Typically you will be subject to use tax in the state where that event occurs.  Use tax is considered a complementary tax.

Our Client Approach to Sales and Use Tax

As part of our tax services portfolio, we offer a comprehensive review of your sales and use tax procedures and tax returns in order to determine whether or not you may be overpaying or underpaying  We offer a 3 step process to help analyze your business and provide answers to your questions:

Initial Review

In our initial review stage, we gather information about how the sales and use process works at your business and determine whether or not additional time should be spent further investigating any possible overpayments.  Questions we look to answer include:

• Which tax returns are being prepared and who prepares them?
• How much sales or use tax are you paying?
• What types of transactions are you paying sales and use tax on?
• How comfortable is the return preparer with sales and use tax taxes and do they feel qualified to prepare the returns?
• Are you familiar with all the possible exemptions to the tax that may apply to your industry?
• Have you incorporated any recent law changes into your process?

Once we complete this stage, a decision is made on whether additional time should be spent investigating any potential issues.  Our experience shows that after this stage we often become aware of possible tax overpayments or underpayments that may exist.

Return and Process Review

Once we determine that a potential refund claim may exist or that there are areas of concern where there is underpayment, we move on to our return and process review stage.   Typically in this stage we look to accomplish the following:

• Discuss the procedures being followed and determine any additional tax savings areas.  This typically includes a site tour and individual meetings with employees involved in the sales and use tax area.  We start with the purchasing manager and follow the chain all the way through the return preparer.
• Review your sales and use returns in order to confirm information gathered in our client review stage and determine an initial projected refund.

Refund Claim Preparation

We use the results from the return and review process to support a claim for refund.  We will file the claim for you, document the adjustments, and manage the refund claim throughout the entire state review process.  Our experience with state tax agencies allows us to streamline the refund process and obtain the refund as quickly as possible.

Do You Need This Service?

Many factors contribute to the possibility of overpaying sales and use tax.  Some of the high risk factors include:

•       Type of industry – Manufacturers by far have the highest risk of overpayment due to a lack of understanding of what areas of the business qualify for the manufacturing exemption.  Other high risk industries include construction and distribution.
•       Personnel turnover
•       Changes in the sales and use tax law
•       Expansion of services or facilities
•       Unfamiliarity with certain exemptions that may apply to your industry
•       Vendor or supplier changes
•       Business growth into another state

Benefits

The most immediate benefit from this service is the recovery of excess sales and use tax that was unnecessarily paid.   In addition, your personnel will benefit from the information gathered and be better equipped to prepare these returns in the future, keeping more of your money in your pocket.

Still have questions?  Join our webinar on Wednesday, July 8th at 1:30pm to see if our panel of experts can help in your situation.  Register Now!