At the end of year, everyone closes the books. Your accountant goes over the records, you explain unusual transactions, and you enter year-end and adjusting journal entries. Everything is great and you're ready to go. Right?! Wrong!...very wrong!
Since the Wayfair case became the law of the land, remote sellers have been as jumpy as a sinner in church about whether they must register to collect a jurisdiction’s sales or use tax. While each jurisdiction has different requirements, there are important updates. One update is the requirement that remote sellers who meet a Texas sales threshold must register to collect Texas sales and use tax.
I love this question. The answer is simple. Learn the tax rules as they apply to your business. And prioritize compliance with the rules BEFORE an audit is generated.
By the time an audit is generated, your records are either good or they’re not. You have taxed the transactions in the audit period correctly, or you haven’t. You have paid sales or use tax due on your purchases, or you haven’t. You have receipts and other documentation needed to conduct the audit, or you don’t.
It is so disheartening to have someone tell me they paid someone to “handle” a sales tax audit for them and they feel cheated because nothing happened. They have a bill and no one will speak with them about it. For everyone who is going through an audit, I have a few things that you should question when hiring an advocate. The next blog will address what YOU can do to secure your best audit result.
I went to a conference and the speaker encouraged business owners to have a second set of books. I heard the suggestion and thought, “what is this craziness?!” The rationale was as follows:
- The first set of books would be given to your CPA, and serve as the basis for tax filings etc. It would accurately reflect expenses, revenues, etc.
- The second set of books would remove select items to show “how the firm was really doing.” The second set of books would eliminate expenses, such as owner salaries, owner-related expenses, and revenue that was deemed extraordinary. It was advised that the second set of books be kept under lock and key and never confused with the “real” set of books.
As people began to make plans to institute this plan, I was struck by the level of risk associated with this practice. It is truly dangerous to have two sets of books.
I recently came across a recording of Wizard of Oz in my DVR and I immediately started drawing parallels between those characters and the state tax world. Some clients are like Dorothy, thrown into a strange world (state and local tax), but willing to follow the yellow brick road on what can be a harrowing journey. Others are like the Lion, praying for courage or like Oz, hiding behind a curtain and making up stories to keep everything running smoothly.
When you are a business owner, there are a million things that you must understand to run a successful business. Understanding your state tax responsibilities is normally not high on your radar. While every jurisdiction is different, there are questions that all business owners should ask about state taxes.
A really nice guy named Richard called because he was awarded a construction project in California. He stated emphatically that he wanted to do the right thing. He wanted to do his job, comply with state tax law, and rest easy knowing that he covered both his bases and those of his client.
As a construction company owner, Richard has it tough. Not only does he struggle finding skilled labor, he is also challenged with high levels of competition, decreasing profit margins and sales and use tax law complexities.
News flash! Understanding the Tax Code is not the easiest thing to do. The good news is that almost jurisdictions provide resources to help taxpayers. Websites with publications, FAQs, the Tax Code and Comptroller or DOR agents are all ready to assist you.
But, sometimes complex issues cannot be resolved by reading the FAQs section of the website or with a call to the taxing jurisdiction. Websites are only as good as the information on them. I have found old, superseded information on DOR websites. I have also found information that was just plain wrong.
There are some things in this world that appear to be interchangeable, but really aren’t: diamonds and cubic zirconia, Tabasco and hot sauce, Drew and Jonathan Scott. While these things (and twin TV host brothers) may look the same, they are different. They are as different as Texas Sales and Use Tax Exemption Certificates and Texas Sales and Use Tax Resale Certificates.
There are taxpayers who pay consultants to look for and retrieve overpayments of sales and use tax. There are several ways to perform this service. One option is to reduce sales tax remittances or request a refund from the vendor without the approval of the state taxing authority. Another option is to submit a refund request directly to the state taxing authority.
In Texas, yes, with few exceptions, sales tax should be charged on taxable products and services until the client issues the properly completed exemption, resale or direct payment exemption certificate. (Nexus is assumed.)
A seller should obtain a properly completed exemption, resale or direct payment exemption certificate at the time of the sale with a few exceptions. If the seller is audited and the appropriate resale, exemption or direct payment exemption certificate is not obtained, the sales tax and corresponding penalty and interest can be levied against the seller.
Most people think if a representative of the state taxing authority makes a statement that is incorrect and they owe tax as a direct result of following inaccurate advice, they can challenge a deficiency based on a detrimental reliance argument. This is not true. Detrimental reliance is a legal term of art that has been defined. In order to mount a successful challenge to a deficiency finding in Texas, you must satisfy all of the following requirements: