Procurement Cards and Sales Tax Complexities Mastering the - - PowerPoint PPT Presentation

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Procurement Cards and Sales Tax Complexities

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Mastering the Compliance Challenges

A Live 110-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features: Camille Buccina, Tax Auditor 2, New York Department of Taxation and Finance, Albany, N.Y. Deborah Ranch, Senior Tax Manager, Sara Lee Corp., St. Louis, Mo. Glenn Feldman, Tax Director, PricewaterhouseCoopers, Tampa, Fla. Douglas DeRito, Principal, Ryan, Atlanta

Tuesday, July 27, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific 10 am Pacific

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Procurement Cards And Sales Procurement Cards And Sales Tax Complexities Webinar

July 27, 2010

Camille Buccina, New York Department of Taxation and Finance ill b i @t t t Deborah Ranch, Sara Lee Corp. debbie.ranch@saralee.com camille_buccina@tax.state.ny.us Glenn Feldman, PricewaterhouseCoopers Douglas DeRito, Ryan glenn feldman@us pwc com doug derito@ryanco com glenn.feldman@us.pwc.com doug.derito@ryanco.com

Today’s Program

Revenue Agency’s Perspective Slides 6-14 (Camille Buccina) Sara Lee Corp.’s Experiences Slides 15-21 (Deborah Ranch) (Deborah Ranch) Best Practices For Corporate Taxpayers With P-Cards, Part I Slides 22-34 (Glenn Feldman) i i h d lid Best Practices For Corporate Taxpayers With P-Cards, Part II Slides 35-39 (Douglas DeRito)

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Revenue Agency’s P ti Perspective

Camille Buccina, New York Department of Camille Buccina, New York Department of Taxation and Finance

New York State Sales And Use New York State Sales And Use Tax Law States: Tax Law States:

 Maintain records  Make records available  Preserve records for three years

• Reg. 533.2, NYS sales and use tax law 1132, 1135

Article 28k, sales and use tax law Sect. 1135

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Failure To Keep Adequate Failure To Keep Adequate p q p q Records Could Result In: Records Could Result In:

 Penalties  Interest

Interest

 Revocation of certificate of authority

Result: Out of business

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Required To: Required To: q File Sales And Use Tax Returns File Sales And Use Tax Returns

 Monthly  Quarterly

Quarterly

 Annually

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Be Prepared To: Be Prepared To: Be Prepared To: Be Prepared To:

 Have records available  Separate procurement card transactions

• General ledger account
• Extraction

special report

• Extraction – special report
• Electronic format

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Be Prepared To: (Cont.) Be Prepared To: (Cont.) Be Prepared To: (Cont.) Be Prepared To: (Cont.)

• Manual review and verification
• Estimation method

New York State prefers that the precise amount of tax is paid on New York State prefers that the precise amount of tax is paid on each purchase.

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Review Of Records Review Of Records Review Of Records Review Of Records

 Detail review  Test period: Form AU-377 12 Test period Audit Method

Test period: Form AU 377.12, Test period Audit Method Election Form Stat sample

 Stat sample

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What About Exempt Sales? What About Exempt Sales? What About Exempt Sales? What About Exempt Sales?

Resellers

• Resellers
• Resale certificate Form ST-120
• Single transactions
• Blanket certificates
• Exempt purchasers
• Exempt purchasers
• U.S. government
• New York State
• United Nations
• Exempt organizations

13

References References References References

 Web site: www.nystax.gov  Telephone: (800 225-5829  Publication 900, Important Information for Business Owners  Publication 750 A Guide to Sales Tax in New York State  Publication 750, A Guide to Sales Tax in New York State  Publication 38, Your Rights as a Taxpayer  Publication 850, New York State and Local Sales and Use

Tax Quick Reference Guide Q

14

Sara Lee Corp.’s E i Experiences

Deborah Ranch, Sara Lee Corp. Deborah Ranch, Sara Lee Corp.

Sara Lee Structure

• The Sara Lee P card program is designed to expedite the purchase and
• The Sara Lee P-card program is designed to expedite the purchase and

receipt of goods and services. O P d i d f b t t li it d t h f ffi

• Our P-card program is used for, but not limited to, purchases of: office

products, general maintenance and repair operations, computers, direct materials, freight/shipping, postage, utilities and services. Travel and entertainment expenses are not allowed under the P card program entertainment expenses are not allowed under the P-card program (there is a separate card issued for these types of expenses). T l t i f h

• Two general categories of purchases

– Informal: Employee makes one-time, ad hoc purchase at local retailer

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Sara Lee Structure (Cont.)

– Formal: Employee chooses item via an online catalog and makes e- purchase that way

• Company is not currently using any type of outside software package

to monitor these transactions for sales/use tax purposes. – Neither sales tax rate verification nor – Neither sales tax rate verification, nor – Use tax accrual

• With the new purchasing system, tax department’s hope is to get all

catalog vendors to Level 3, where sales tax information will be readily available via monthly reports from the system.

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Sara Lee Structure (Cont.)

• Current approach relies heavily on knowledge and training of field

personnel. Purchasing employee takes responsibility whether purchasing in – Purchasing employee takes responsibility, whether purchasing in person or via online catalog. – When making a purchase from online catalog, purchasing/approving employees have the ability to remove tax purchasing/approving employees have the ability to remove tax prior to approving payment. T d t t i h f GL/ t i

• Tax department reviews purchases from a GL/expense account review
• f what’s going through the SAP system.

18

Staff Training

• Training of field personnel on P-card policy and practices takes place

in the following ways: – Online P-card policy manual p y – During annual meeting held for all plant controllers – Tax department posting of general sales tax guidelines/charts on the company intranet site the company intranet site – Internal audit reviews include standard testing of retention compliance

19

Pros To Sara Lee Approach

• Is the only approach the tax department currently has in place

By no means is it foolproof but at least it is something – By no means is it foolproof, but at least it is something

• So far, the accrual methodology has held up under scrutiny; no serious

i h b i d dit issues have been raised upon audit

20

Cons To Sara Lee Approach

• Tax staff is constantly working to ensure the company is capturing all

data needed.

• Requires frequent review to ensure the accrual percentages are correct
• r at least within the tolerance range

g

• Approach isn’t looking at where the company shouldn’t be paying tax

21

B t P ti F Best Practices For Corporate Taxpayers p p y With P-Cards, Part I

Glenn Feldman, PricewaterhouseCoopers Glenn Feldman, PricewaterhouseCoopers

Background

• A. Procurement cards (commonly called “P-cards”) are corporate credit

cards that let companies purchase high-volume, low-cost goods without completing purchase orders . 1) This lowers the cost of processing purchase orders by limiting their use to costlier items, and saves the internal cost of processing a check and postage.

• B. However, there are many state sales tax issues that should be

considered when using these cards. co s de ed w e us g ese ca ds.

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Sales Tax Issues

• A. Sales tax info must be retained for verification on state audit.

B. It can sometimes be difficult to determine when and where sale took place. C. Internal controls for, and procedures around, P-card usage will determine an enterprise’s sales/use tax compliance needs.

24

Best Practices - Documentation

1) Obviously, your company needs to retain good records; however, this can take many different forms. a) Does the cardholder keep a copy of the receipt? a) Does the cardholder keep a copy of the receipt? b) If so, for how long (generally, seven years is standard)? 2) M i i th t i f b itt d d t t dit b 2) Many companies require that info submitted under state audit be submitted at the time cardholder makes a submission for reimbursement. ) S dit d i h thi i f il bl a) Some credit card issuers have this info available electronically. b) In this case, would burden shift to card issuer? This should be decided at beginning of program decided at beginning of program.

25

Best Practices – Documentation (Cont.)

3) If documentation is kept at cardholder level, taxpayer must be careful regarding what type of info is kept. regarding what type of info is kept. a) For example, receipt may not indicate where item has been shipped shipped. b) Packing slip may need to be retained, since some states looked to hi d t dd t d t i h t h ld b ll t d shipped-to address to determine where tax should be collected.

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Best Practices – Documentation (Cont.)

4) Typically, states require following info: a) Date of purchase a) Date of purchase b) Company name c) Name of user/department/division/group d) Description of the item e) Purchase price f) Amount of tax paid g) Other (e.g. local tax info, delivery point, itemized list of taxes paid)

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Best Practices – Documentation (Cont.)

5) If the documentation process becomes too cumbersome, then it could defeat the benefits of implementing a P-card system.

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Best Practices – Determining When Best Practices – Determining When, Where Sale Took Place

1) Similar to problems incurred with drop-shipping issues, P-cards can create difficulties to properly account for sales taxes. create difficulties to properly account for sales taxes. a) For example, if a purchaser in State A buys taxable items in State B online, and has some items shipped to State A but also some to State C and a foreign country, how would sales taxes be some to State C and a foreign country, how would sales taxes be paid on this transaction? b) This is further complicated from a timing standpoint, since the order date could be Dec. 15 and the P-card statement does not e o de da e cou d be

• ec. 5 a d

e ca d s a e e does o arrive until Jan. 18, but the tax is due in State A on Jan. 20, since the company is a monthly filer.

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Best Practices – Determining When Best Practices – Determining When, Where Sale Took Place (Cont.)

2) As a result, it is prudent to keep not only receipt information but also packing slips and other shipping documentation.

30

Best Practices – Managed Audits

1) Managed audits (also called managed compliance) give taxpayers the 1) Managed audits (also called managed compliance) give taxpayers the

• pportunity to work out a written agreement with the state to determine

what percentage of P-card transactions are subject to tax. 2) This takes the guesswork out of the compliance issue 2) This takes the guesswork out of the compliance issue . 3) However, this could open the door for the state to discuss

• ther sales tax issues.

31

Best Practices – Direct Pay Permits

1) Another way to internally control sales tax issues with the use of P- cards is to limit their use to certain approved vendors and have a direct pay permit with these vendors. 2) Direct pay permits let vendors avoid charging sales tax and shift the burden on the taxpayer to self-assess use tax on all applicable burden on the taxpayer to self assess use tax on all applicable transactions. 3) This can be an effective way to control sales tax exposure by allowing 3) This can be an effective way to control sales tax exposure by allowing the taxpayer to control its sales tax exposure.

32

Best Practices – Limiting Card Use To Best Practices – Limiting Card Use To Certain Vendors Or Products

1) If direct pay permits are not a viable option, then limiting P-card use to certain vendors or certain products will also control sales tax to certain vendors or certain products will also control sales tax exposure. 2) If P-cards are used with only certain vendors, then these vendors can be told to collect or not collect tax on all P-card transactions. be told to collect or not collect tax on all P card transactions. 3) Similarly, if P-cards can only be used for only taxable or non-taxable items, then the sales tax exposure is minimized. 4) In addition if the taxpayer has undergone a §404 review the policies 4) In addition, if the taxpayer has undergone a §404 review, the policies and procedures that were developed for P-cards should be followed, and if not documented should be performed.

33

Best Practices – Accruing Use Tax

1) The least favorable option would be to accrue use tax on all P card 1) The least favorable option would be to accrue use tax on all P-card transactions. a) This could lead to an overpayment. b) However, some companies would rather perform a refund audit every few years to gain the freedom of knowing there is no sales t ith th i P d tax exposure with their P-card program.

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B t P ti F Best Practices For Corporate Taxpayers p p y With P-Cards, Part II

Douglas DeRito, Ryan Douglas DeRito, Ryan

Use Of Corporate Procurement Cards

• Overview
• Procurement card operations/background
• Sales/use tax issues
• Sales/use tax issues
• State practices for verification of sales tax paid and use tax accrual and

remittance T li i

• Tax compliance issues
• Current card user practices/best practices

36

Sales/Use Tax Issues

• Sales/use tax info must be retained for verification on state audit.
• Sometimes difficult to determine when and where sale took place
• Internal controls for, and procedures around, P-card usage will

determine the sales/use tax compliance needs of an enterprise.

37

State Practices For Verification Of Sales Tax Paid Use Tax Accrual And Sales Tax Paid, Use Tax Accrual And Remittance

• Manual review and verification
• Estimation methods
• Estimation methods
• Combination approaches
• Vendor requirements
• Card User requirements
• Card Issuer requirements
• Card Issuer requirements

38

Tax Compliance Issues

• Tax sensitized documentation for each transaction
• Tax-sensitized documentation for each transaction
• Information and documentation required
• What information is currently available?
• What internal controls are in place?
• P card processes and integration with compliance procedures
• P-card processes and integration with compliance procedures
• How P-cards are used can drive tax decision needs

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