Presenting a live 110 ‐ minute teleconference with interactive Q&A Procurement Cards and Sales Tax Compliance Procurement Cards and Sales Tax Compliance Planning and Executing a Program to Master the Complexities THURSDAY, JULY 7, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Greg Anderson, Partner, Application Design Resource LLP , Dallas Greg Anderson Partner Application Design Resource LLP Dallas Alexandra Sampson, Reed Smith , Washington, D.C. Curt Regensberger, Revenue Audit Supervisor, Illinois Department of Revenue , Fairview Heights, Ill. Deborah Hoff, Field Manager, Texas Office of the Comptroller , Houston Deborah Hoff, Field Manager, Texas Office of the Comptroller , Houston For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .
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Procurement Cards and Sales Tax P t C d d S l T Compliance Seminar July 7, 2011 Alexandra Sampson, Reed Smith Greg Anderson, Application Design Resource LLP asampson@ reedsmith.com greg.anderson@ pcardtax.com Curt Regensberger, Illinois Department of Revenue Deborah Hoff, Texas Office of the Comptroller curt.regensberger@ illinois.gov deborah.hoff@ cpa.state.tx.us
Today’s Program State Handling Of P-Card Transactions: Examples g p Slide 7 – Slide 8 [Alexandra S ampson] Slide 9 – Slide 15 Compliance Options [Greg Anderson] [G eg de so ] Working With Issuers Slide 16 – Slide 22 [Greg Anderson] Recordkeeping Priorities Slide 23 – Slide 24 [Alexandra S ampson] Slide 25 – Slide 33 Slide 25 Slide 33 Illinois Treatment Of P-Card Transactions Illinois Treatment Of P Card Transactions [Curt Regensberger] Slide 34 – Slide 41 Texas Treatment Of P-Card Transactions [Deborah Hoff] Slide 42 – Slide 50 Best Practices For Companies Using P-Cards [Greg Anderson and Alexandra S ampson]
Alexandra Sampson, Reed Smith STATE HANDLING OF P CARD STATE HANDLING OF P ‐ CARD TRANSACTIONS: EXAMPLES
Examples Of State Procurement Card Policies Recordkeeping requirements and audit methodology vary by state Recordkeeping requirements and audit methodology vary by state • States vary with respect to: • ― The types of documentiaon required ― The length of time that records must be retained ― The audit methodology used and the availability of managed audits ― The allowance of direct pay permits The allowance of direct pay permits Many states do not have procurement card specific rules • State-specific examples • ― New York ― Florida ― South Carolina ― Virginia 8
Greg Anderson, Application Design Resource LLP COMPLIANCE OPTIONS COMPLIANCE OPTIONS
Most Common Compliance Approaches No accrual process may be a valid approach • Manual transaction review Manual transaction review • • Level II/Level III reliance • Estimation Estimation • Tax modeling • Spreadsheet-based • Third-party software • 10
M Manual Transaction Review l T i R i Manual review of cardholder submitted receipts Manual review of cardholder submitted receipts • • National Association of Purchasing Card Professionals (NAPCP) • 60% of programs performed a manual transaction review. 60% of programs performed a manual transaction review. • 56% noted that limited staff resources were a significant • roadblock to developing an accrual process. Time consuming • Tasks are repetitive • Limited opportunities to increase efficiency • Accuracy directly related to competence of reviewer/quality • of documentation of documentation Difficult to establish a cost/benefit • 11
L Level II/Level III Reliance l II/L l III R li In this approach, use tax is accrued on all transactions for which a • tax amount is not passed with the transaction data. The approach may be modified to also exclude ”in-state” • transactions, if location data of the purchaser and merchant are available. Limited Level II and Level III data reported on transactions • NAPCP survey showed majority of respondents saw Level II or NAPCP survey showed majority of respondents saw Level II or • • Level III data on <25% of transactions Much lower than issuer analysis of Level II capable vendors • Requires less time than other approaches • Still difficult to establish beneficial cost/benefit, since approach • results in overpayments esults ove pay e ts 12
E Estimation i i In this approach a detailed review is performed of each transaction during In this approach, a detailed review is performed of each transaction during • the sample period. Based on the results of the sample review, an accrual is determined. The accrual calculated on the sample, is converted to a factor (generally expressed as a percentage, period accrual/total sample) and is projected against future transactions. j d i f i Based on the NAPCP user survey, 15% of respondents use some form (block or • statistical) of sampling. Since the estimate is calculated to slightly overestimate the accrual, it • generally results in the overpayment of use tax. Overpayments may also result if the estimate is not updated periodically, as • more vendors begin to collect tax in more jurisdictions. d b i t ll t t i j i di ti May not be effective if program is expanding into new operations, locations • Time required to create the estimation factor in each jurisdiction, combined • with risk of overpayments, may present a challenge to establishing a positive cost benefit. 13
T Tax Modeling M d li Tax modeling combines data passed with the transaction, data appended to • the transaction from the issuer database, and basic sales/use tax principles to identify reasons to exclude a transaction from the use tax accrual. Can be performed using manual manipulation of data in a spreadsheet • application, or third-party software can be used Based on the NAPCP user survey, 23% of the respondents used some form of • this approach. Depending on how the process is managed, this has the potential to be the • most cost effective approach. It reduces cardholder and administrator time to execute monthly accrual, develops and retains tax intelligence, and is easily updated for program changes and additions updated for program changes and additions. Provides effective audit documentation and workpapers in support of the use • tax accrual Generally most cost effective approach since time required to execute a Generally most cost effective approach, since time required to execute a • • spreadsheet approach is limited, and cost of software is minimal. 14
T Tax Modeling: Example M d li E l Tax modeling begins with an assumption that all transactions Tax modeling begins with an assumption that all transactions • are suspect, and establishes criteria that exclude a transaction from the use tax accrual. Exclusion criteria might include: E l i it i i ht i l d • Sales tax data passed by the merchant • In state transactions In-state transactions • • MCC codes assigned to the merchant • Specific merchants based on nexus profile Specific merchants based on nexus profile • GL/cost center code assigned to the transaction • Specific cardholders • The NAPCP study is available at www.napcp.org 15
Greg Anderson, Application Design Resource LLP WORKING WITH ISSUERS
W Working With Issuers ki Wi h I Issuer selection • Implementation • Ongoing issuer relationship – Tools and support • Data management • 17
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