Preface: As sales and use taxes can create a complex web for tax compliance, harnessing the right tools to manage and reduce those tax risk is advisable. With this three series blog, you should now have an awareness of what the advisable steps are towards that tax compliance.
Village Property Maintenance Company, Inc.
Credit: Donald J. Sauder, CPA | CVA
Managing more than 15,000 rental units within the state, from the metropolitan center to vibrant college town, Village Property Maintenance Company, Inc. (VPMC) management worked every angle for another dollar or two. When new management joined the business, they voted that a new accounting firm would provide high level CPA services with more conservative tax risks.
In initial meetings, VPMC’s CPA discussed all the relevant tax and accounting facts from multi-state tax nexus to sales and use tax, and inquired on compliance with applicable state payroll taxes. During the conversation, it became evident that the 2,000 wash machines and dryers the company purchased each year, were subject to sales or use tax that had not been paid. The CPA assessed the cost of compliance between $100,000 to $140,000 per year.
Management made the decision to have a thorough project evaluation of all tax filing compliance for the business. During that the compliance evaluation, the company obtained a compliance report on all relevant tax laws including the sales and use tax filings. With the assurance of appropriate accounting and tax oversight in place, the business fortunately was never audited for the pending tax risks, and never assessed a potentially alarming audit settlement for noncompliance with appropriate tax leadership.
Sales tax evaluations
So what should your business do? A sales tax evaluation should begin with assessing a company’s customer revenues, and taxability of those customer’s purchases. This is most easily managed with appropriate software. Sellers of services and goods that are taxable can obtain and keep on file, exemption certificates from customers that exempt the sale from sales tax. If this document is not on hand, the sale is subject to the applicable sales tax rules. For good accounting department management, a company should request this form from all customers in every state, and even if not registered in the state, to protect from nexus risks. Penalties if assessed can exceed 10% with interest. Every accountant should advise and guide your business compliance with all sales and use tax laws.
The evaluation of use tax requires an assessment of the vendors and purchasing of a business. One of the largest risks companies can have beside taking no action on sales tax, is to gamble with use tax compliance. The first place to start evaluating this risk is with recent vendor payments and high-dollar expenses. Paying appropriate use taxes is the advised business policy.
Summary: As sales and use taxes can create a complex web for tax compliance, harnessing the right tools to manage and reduce those tax risk is advisable. It begins with a review processes for tax compliance, then characterizing the taxability features of each process from customer sales to vendor payments. Sometime technology assessments and implementation are necessary. Working with an accountant who will invest the time with you to ensure your business is compliant with sales and use tax laws is advised and necessary. This advised compliance evaluation is one more step towards perpetuating your businesses long-term successes and managing your business with integrity.