Presenting a live 110-minute teleconference with interactive Q&A Reverse Audits for Corporate Taxpayers: Best Practices for Identifying Sales Tax Refunds THURSDAY, DECEMBER 13, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Mark Loyd, Partner, Bingham Greenebaum Doll , Louisville, Ky. Mike Dillon, President, Dillon Tax Consulting , Annapolis, Md. 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 at 1-800-926-7926 ext. 10 .
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Reverse Audits for Corporate Taxpayers: Best Practices for Identifying Sales Tax Refunds Seminar Dec. 13, 2012 Mark Loyd, Bingham Greenebaum Doll Mike Dillon, Dillon Tax Consulting mloyd@bgdlegal.com mike@dillontaxconsulting.com
Today’s Program Goals For The Reverse Audit Slide 8 – Slide 14 [Mark Loyd] Slide 15 – Slide 18 Indications Of Possible Tax Overpayments [Mark Loyd and Mike Dillon] Safeguards Against Future Tax Overpayments Slide 19 – Slide 23 [Mike Dillon] Slide 24 – Slide 27 Negotiating With, Managing Reverse Audit Outsourcing Firm [Mike Dillon and Mark Loyd]
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Mark Loyd, Bingham Greenebaum Doll GOALS FOR THE REVERSE AUDIT
Primary Goal For The Reverse Sales Tax Audit 9 O BTAIN A R EFUND OR C REDIT OF S ALES AND U SE T AX Motivations : • Refund for refund’s sake • Manage state DOR audit assessment • Improve ongoing compliance Scrutiny : Primarily on tax-paid transactions • Compare with state DOR audit: Scrutiny on non- tax-paid transactions www.bgdlegal.com
Primary Goal For The Reverse Sales Tax Audit (Cont.) 10 O BTAIN A R EFUND OR C REDIT OF S ALES AND U SE T AX ( CONT .) Approaches : • Compliance : Focus on all sale/purchase transactions • Ensure compliance with tax matrix (tax-paid and non-tax-paid) Improve error rate • Results -oriented : Focus on refund/credit • • High level : Focus on tax -paid items with most potential for refund/credit Targeted : Focus on specific issue(s) • www.bgdlegal.com
Logistical Goals Of Reverse Tax Audit 11 Identify transactions on which tax was potentially overpaid, using efficient methodologies • Approaches to examining sales/purchases: • Examine all • Sample • Review group of like suspect Items • Group homogeneous transactions : • PO, invoice, G/L account, vendor, etc. www.bgdlegal.com
Logistical Goals Of Reverse Tax Audit (Cont.) 12 Identify errors Error Cause O f Error Resolution Tax paid or No tax matrix Create tax matrix not paid Tax matrix not used Redistribute tax matrix; in error more training Tax matrix misunderstood Update/revise tax matrix; more training or re-training Exemption read too Update tax matrix narrowly or broadly www.bgdlegal.com
Logistical Goals Of Reverse Tax Audit (Cont.) 13 Evaluate sales/use tax position Position Support Not taxable Extra-jurisdictional; subject matter not taxed Exempt Property; transaction; entity Credit Economic development; incentivize action (e.g., recycling) Also, confirm determinations that tax is due www.bgdlegal.com
Logistical Goals Of Reverse Tax Audit (Cont.) 14 Assemble documentation demonstrating tax was overpaid on transactions • Invoices • Alternatives: Purchase orders, contracts • Description of property, process or use • Graphic illustration (e.g., pictures or videos) of property, process or use www.bgdlegal.com
Mark Loyd, Bingham Greenebaum Doll Mike Dillon, Dillon Tax Consulting INDICATIONS OF POSSIBLE TAX OVERPAYMENTS
Evidence And Indications Of Possible Tax Overpayments 16 Focus on tax -paid sale/purchase transactions • Tax accrual and expense G/L accounts • • List of tax-paid items from financial systems with relevant available data Financial account information: G/L account, business unit, cost • center, vendor, etc. G/L vs. procurement cards • Sales tax or use tax paid? Direct pay permit? • • Tax matrix Sales and use tax returns • www.bgdlegal.com
Evidence And Indications Of Possible Tax Overpayments (Cont.) 17 • Lack of internal tax function focused on sales tax • Lack of a use tax accrual process – No internal review of purchases for proper tax Application by vendor – Vendor incentive and A/P incentive – Potential for exposure as well • State sales tax audit yields “no change.”
Evidence And Indications Of Possible Tax Overpayments (Cont.) 18 • Electronically delivered purchases • Rapid expansion of activities into new states with which company lacks sales tax experience • Decentralized purchasing • Complex purchase, delivery and use activities (including drop shipments)
Mike Dillon, Dillon Tax Consulting SAFEGUARDS AGAINST FUTURE TAX OVERPAYMENTS
Implementing Safeguards Against Future Overpayments 20 • Use tax accrual process – Internal review of purchases for proper tax application by vendor – Vendor/account scrub • Sales and use tax matrix – Manual or automated process – Consistency and uniformity
Implementing Safeguards Against Future Overpayments (Cont.) 21 Dedicated A/P staff and departmental incentive • program for accuracy – Inaccurate reliance on human knowledge and manual processing – Staff turnover – Inaccurate recordkeeping in turn attracts tax auditors. Dedicated compliance staff and uniform processes • – A/P must apply tax laws and keep up with the constantly changing product taxability rules. – Incentive is expedient processing, not compliance.
Implementing Safeguards Against Future Overpayments (Cont.) 22 • Regularly review purchase accounts – Large purchase accounts – Special purchase accounts – Specific vendors • Effective rate agreements – Simplify use tax compliance – Take sales tax application out of hands of vendors
Implementing Safeguards Against Future Overpayments (Cont.) 23 • Sales and use tax compliance software – Automated tax decision, rating and return preparation – Keep accounting personnel focused on higher-value work – Seamless integration with accounting/billing – Data archived for audit purposes
Mike Dillon, Dillon Tax Consulting Mark Loyd, Bingham Greenebaum Doll NEGOTIATING WITH, MANAGING REVERSE AUDIT OUTSOURCING FIRM
Negotiating With And Managing A Reverse Audit Outsourcing Firm (Cont.) 25 Approach Options Compliance Contingency fee Refund/credit By the hour High level Flat fee Targeted Hybrid www.bgdlegal.com
Negotiating With And Managing A Reverse Audit Outsourcing Firm 26 • Contingent fees • Alternative fee structures – Hybrid of hourly or fixed, and percentage – Strata with different percentages for increased results • Fee application to historical results only, not prospective results
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