Interim Reviews:  Friend or Foe?

Posted by Mary Thomas on Jul 12, 2017 9:15:00 AM

interim-review-of-sales2.pngThe first thought that comes to mind when explaining to someone that they have no reasonable basis on which to challenge a tax bill is, "An interim review could have stopped this tax bill in its tracks."  A few events should trigger the thought that an interim review might be a good idea.

  1. You are entering a new state, i.e. tax jurisdiction. When extending an area of service it is important that you know the rules of the “new” jurisdictions you are servicing. Tax responsibilities sometimes differ wildly from jurisdiction to jurisdiction. It is a best practice to ensure that new responsibilities are being handled in accordance with governing tax rules. Again, it is cheaper for you to find and correct an error than it is for you to pay for a mistake that is uncovered by a state taxing authority.

  2. You are engaged in a sale that is material to your organization. Many companies decline a review of their entire system but do commission the review of material sales. When engaging in a transaction that can result in catastrophic consequences if sales or use taxes are not handled appropriately, commission a review preferably before or at the time of the transaction. If you have a client who states the sales or use tax should not be charged, make sure you have the documentation needed to support the tax-free nature of the transaction.  Clients are not always correct and may not provide the necessary documentation when claiming an exemption.  The taxing authority may collect sales or use tax from the seller and leave it to that seller to seek reimbursement from the purchaser.

  3. You are making purchases that are material to your organization. When making a material purchase, have someone review all facets of the transaction to make sure you know the true costs of the transaction, including sales and use tax. Construction is the most common area in which taxpayers benefit from review. Again, the commission of a review before or during the transaction is optimal. Corrective actions may be available if documentation does not consistently support the tax treatment employed. However, this is more onerous than structuring the transaction in the manner desired before or during the course of the transaction.

These are few reasons to have interim reviews.  Notice the reviews are advisable if state tax compliance is or has been an issue, product and/or service lines are changing, or the business is expanding geographic regions.

Topics: Sales Tax, Use Tax

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