Some taxpayers intentionally employ vague contract language. Clients most commonly share that they use vague contracts because (1) a form is the industry standard or (2) they want to be able to capture as much work under one master contract as possible without negotiating a separate contract. Whatever the reason, I have two problems with vague contracts. First, how can your accounting staff ensure the tax treatment is correct if the transaction isn’t fully documented? Second, how can an auditor determine the tax treatment was correct, especially if an exemption was granted? The failure to be clear can be very expensive when the sales tax auditor comes to call.
Taxpayers who purchase companies are sometimes audited during periods where the acquired company was not part of the current entity. If the purchaser did not have the seller secure a certificate of no tax due, the purchaser is liable for sales or use tax assessed during the audit period, without regard to who owned the entity during the audit period.
It is frustrating to tell a taxpayer that there is no reasonable way to effectively fight a crippling tax deficiency. The truth is that a tax deficiency happens BEFORE an audit. If an auditor identifies a legitimate area of noncompliance, there is very little that can be done to ameliorate the situation. The following are a few examples of bad situations endured by taxpayers.
In Texas, the answer is “yes, if certain conditions are met."
When some people think about an electronic signature they have images of typing a name on a form and using a font on their computer to make it look like cursive writing. Certificates with this type of “signature” are not sufficient. These certificates should not be accepted by sellers.
Many business owners assume they do not have a sales and use tax issue. For some companies, this is true. For others, sales and use tax compliance is a dangerous issue. Without getting into issues of taxability, review these documents to quickly determine if a review of sales will land you in hot water.
When companies collect sales or use tax, there is typically an accrual account that records the value of the sales or use tax collected. Money should move in and out of this account in accordance with the frequency with which tax returns are filed. For instance, if tax returns are due every month, the tax collected should be remitted to the state taxing authority every month. The tax remitted should be seen leaving a cash account every month.
There should be money in your sales tax accrual account if you continuously collect sales tax. The amount of money in the account is dictated by the volume of taxable sales you generate. For instance, in Texas, sales are measured from the first of the month through the end of the month. But sales tax collected is due on the 21st of each month for monthly filers. Deadlines vary based on taxpayer status. A taxpayer can be a monthly, quarterly, or yearly filer.
Some taxpayers inquire about the difference between total sales and taxable sales on the Texas sales tax return. On the Texas sales tax return there is a line for total sales followed by a line for taxable sales. Many taxpayers put the same number in both places. For some taxpayers, the numbers are the same. For other taxpayers, the numbers are very different.
When any seller sells a taxable product or service to an entity that is not exempt from sales or use tax by law and does not charge sales or use tax, it is imperative that a properly completed exemption, resale, or direct payment exemption certificate is on file. The properly completed certificates are collected in lieu of collecting the sales tax if the required documentation is not presented. Companies care about collecting the required documentation because if the seller does not produce one of these properly completed documents during an audit, the taxing authority can typically collect the tax directly from the seller.