Fool's Gold - Vague Contract Language

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.

Business Purchasers: Get a Certificate of No Tax Due or Demand a Set-Aside for Potential Unidentified Sales Tax Noncompliance

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.

What Is The "Taxable Purchases" Section of My Texas Sales and Use Tax Return?

This is the section of the Texas sales and use tax return that is used to report taxable purchases. When a vendor does not charge sales tax on a purchase that is taxable under Texas law, the taxpayer should accrue and remit use tax on the sales and use tax return.

Audit Results are Set in Stone BEFORE the Audit

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.

Why Would Anyone Pay for an Interim Review of Sales and Use Tax Compliance?  (Part 1 of 2)

Most companies do not pay for interim reviews but there are special situations when they, arguably, should participate in these reviews. These situations include, but are not limited to:

Electronic Signatures. Are they acceptable on resale, exemption or direct pay permit certificates?

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.

I am Being Audited...I Didn’t Charge My Client Sales Tax… How Can I Recover the Money?

This lament is usually heard when a seller is undergoing audit by the Texas Comptroller of Public Accounts.  The auditor uncovers a taxable transaction that has concluded and levies sales tax against the seller.

My Contract Says All Taxes Are Included. That Includes Sales and Use Taxes… NOT!

In Texas, it is a settled area of law that sales and use tax must be addressed with specificity in a contract.  Boilerplate language that “all taxes are included” does not suffice to prove that sales tax was included in the price.

Quick Test: Do I Have a Sales and Use Tax Issue?... Do My Key Numbers Match?

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.

So, My Key Numbers Match… Beware the Big Neon Sign: The Sales Tax Accrual Account

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.

Don’t Panic!... There Should Be Some Money in Your Sales Tax Accrual Account

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. 

A Matter of Confusion: Total Sales vs. Taxable Sales

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.

What Is a Properly Completed Exemption, Resale, or Direct Payment Exemption Certificate? And Why Do I Care?

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.

“The content of this website is intended to convey general information only and does not represent accounting, tax or legal advice or opinion. Because tax laws, policies, and applications are dynamic and fact-specific, please consult with a state tax professional for a complete analysis of law as it may apply to your specific situation at a particular time. If you require an in-depth review of a specific fact situation, please contact our offices to establish a client relationship for opinion and advice.”