Procurement Cards and Sales Tax Compliance: Mastering the - - PowerPoint PPT Presentation

Procurement Cards and Sales Tax Compliance: Mastering the Complexities

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1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific

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WEDNES DAY, MAY 30, 2012

Presenting a live 110-minute teleconference with interactive Q&A

Douglas DeRit o, Principal-In-Charge, Ryan, At lant a S t eve Peck, Nort heast Regional Tax Manager, Georgia-Pacific Corp., At lant a

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Procurement Cards and Sales Tax: Mastering the Complexities Seminar

S teve Peck, Georgia-Pacific smpeck@ gapac.com May 30, 2012 Douglas DeRito, Ryan doug.derito@ ryan.com

Today’s Program

P-Card Compliance Difficulties, And Options [Douglas DeRit o] Working With Issuers Of P-Cards [Douglas DeRit o] P-Card Experiences, Best Practices At Georgia-Pacific [S t eve Peck] S lide 7 – S lide 11 S lide 12 – S lide 13 S lide 14 – S lide 24

P-CARD COMPLIANCE DIFFICULTIES, AND OPTIONS

Douglas DeRito, Ryan

Use Of Corporate Procurement Cards

• Overview
• Procurement card operations/ background
• S

ales and use tax issues

• S

tate practices for verification of sales tax paid and use tax accrual and remittance

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

8

Sales And Use Tax Issues

• Level of data (Level 1, 2, 3)
• Merchant community responsibility
• Determining if sales/ use tax is due, and rate application
• S

ales and use tax information must be retained for verification

• n state audit.
• S
• metimes, it is difficult to determine when and where a sale

took place.

• Internal controls for, and procedures around, P-card usage will

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

9

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

• Manual review and verification
• Estimation methods
• Combination approaches
• Vendor requirements
• Card user requirements
• Card issuer requirements

10

Tax Compliance Issues

• 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
• How P-cards are used can drive tax decision needs.

11

WORKING WITH ISSUERS OF P-CARDS

Douglas DeRito, Ryan

Working With P-Card Issuers

• Level 1, Level 2, Level 3 data complexities
• Currently, P-Card issuers are not focused on providing

sufficient data for tax rate application and tax management. How P-Cards are used can drive tax decision needs.

• The merchant community is inconsistent with the level of data

being provided.

• Card brand name can provide the infrastructure for

transaction management.

• Discounts are provided for proactive tax management, in some

cases.

• S

eparate P-Card usage: Exempt and non-exempt purchases.

13

P-CARD EXPERIENCES, BEST PRACTICES AT GEORGIA- PACIFIC

Steve Peck, Georgia-Pacific

Background

• I. Georgia-Pacific was a Fort une 500 company until its purchase by Koch

in late 2005; it is now privately held.

• II. Manufacturer of cellulose tissue, paper, corrugated/ packaging and

building products including lumber, plywood, OS B, gypsum and chemicals

• III. Manufacturing/ converting locations, as well as offices, warehouses

domestically in about 35 states IV . Began using P-cards in the early 1990s but for years (until turn of the millennium) only for office products and inconsequential, low-dollar purchases V . About 3,000 P-cards are now in use, with significant annual spending (about 250,000 transactions)

• VI. Usage is ramping up, both in terms of dollars, types of purchase

activity and across all business units

15

Overview Of Sales And Use Factors

• I. 75%
• f merchants are Level 1. Charge is transmitted to bank to

pass to the company, and does not include a separate tax charge.

• A. Primary challenge is to ascertain what transactions

have not been taxed by the merchant.

• B. S
• me merchants that have Level II capabilities are

not sending the separate tax amount; expeditious vs. tax accuracy.

• II. P-cards are widely distributed to users for a wide array of

purchase activities.

• A. Not limited to vendors [or super-vendors] or

restricted to certain types of goods/ services

• B. No leverage to sales and use tax based on specific

merchant or type of spending

16

Overview Of Sales And Use Factors (Cont.)

• III. Burden is on the P-card holder to review receipts for tax and

input in allocation program, if tax was indeed part of the Level I gross amount. IV . Key point : If cards were designat ed for cert ain “ super” vendors or assigned t o cert ain spending, t hat would aid and abet t ax review and cont rol t ax exposure. This has not been our pat t ern or experience.

17

P-Card Technical Tax Configuration

• I. Banks, in our experience, have not programmed allocat ion

programs t o address t ax considerat ions.

• II. Georgia-Pacific designed a cust om sales and use funct ionalit y t o

int egrat e wit h our Vert ex TDM AP syst em.

• A. Paid bank modified it s user allocat ion program t o

accommodat e.

• B. Tax codes incorporat ed:
• 1. ME = Manufact uring exempt
• 2. S

E = S ervice exempt

• 3. MS

= Manufact uring special rat e

• 4. GT = General t axable

“ GT” default s, if user leaves blank

18

P-Card Technical Tax Configuration (Cont.)

• III. Tax amount must be keyed by P-card holder, if tax amount

sent by bank was left blank or zero. If receipt shows no tax paid, then 0.00 must be keyed. IV . Users must select the appropriate tax code at the line level, during the monthly allocation to the GL account.

• A. S
• me accounts are pre-set with exclusively exempt or

taxable settings; TC has no impact.

• B. Automated validation: If taxable with 0.00 in sales tax

amount, a use tax will be accrued

• 1. Use tax based on cardholder-assigned location

19

P-Card Technical Tax Configuration (Cont.)

• C. Unsatisfactory level of compliance with user tax

coding

• 1. Encourage behavior modification, but it’s

difficult to monitor and change since so often they wait until the last minute, have many transactions, do not keep receipts handy and do not feel the sting of the tax accrual

• D. Key point : If merchant / bank does not capt ure t ax

[Level 1], a high burden is creat ed on t he user, and high- risk t ax will not be capt ured in program. Even if cust omized, it ’s difficult t o enforce appropriat e t ax code select ion.

20

Georgia-Pacific Procurement Initiative, ‘Procure To Pay’

• I. Efficiency, economy-of-scale centralization, multi-year effort
• II. Obj ectives for cost containment are not congruent with sales

and use compliance exposure limitation.

• A. PO => ERS

(evaluated receipt settlement)

• B. Other/ non-PO => P-card

21

Georgia-Pacific Procurement Initiative, ‘Procure To Pay’ (Cont.)

• III. Both are fraught with tax complications.
• A. ERS

: Facilitated by direct pay permit, but we only have ~half of facilities on direct pay

• B. P-card: Only 25%

Level II or III, hence burden is on user; often falls short IV . Increase in P-card expectancy – enterprise-wide and dollar- wise. V . Key point : Procurement direct ion can exacerbat e sales and use t ax difficult ies. Be a part of t hat t eam; prepare economic response/ j ust ificat ion for t ax cust omizat ion, including t ax packages.

22

Tax Solution Consideration

• I. Procurement company –

we could not get traction on this

• A. All purchases exempt for resale; recognize tax when

issued from procurement company to facility, and self- assess

• B. Would help P-card exposure to pay tax to vendor

and self-assess use tax due to lack of tax-paid information

• C. S

hortcoming: Vendors that are either not notified of procurement card or aren’ t sophisticated enough to recognize and accommodate

• D. Requires corporate/ operational buy-in and structure
• 1. Up-front significant cost and timetable
• II. Better bank incentive offered to merchant

23

Tax Solution Consideration (Cont.)

• III. Effective post-pay analysis to spot transactions with suspicious tax

exposure

• A. Accrued use tax, but suspect tax was paid
• B. Out-of-state vendors with no tax accrued
• C. Tax codes inappropriate for spend type, based on

vendor and spend type

• D. Incorporated more P-card attributes in our TDW to

post-pay analyze, including cardholder, merchant, MCC description, spend, account number

• 1. Planning to provide data to controllers for

their post-process (with use tax accrual info) review IV . Key point : Plan ahead; be part of procurement init iat ives/ t eam and be proact ive in det ermining and pursuing a t ax exposure minimizat ion plan

24