Tax Tips – August 2010

Illinois
The amnesty program established by the Illinois Department of Revenue starts October 1st and will run through November 8, 2010. The program includes taxes due (income, sales & use, telecommunications, and most other taxes) for periods ending after June 30, 2002 and before July 1, 2009. Upon payment of the taxes due for these periods, the Department will abate interest and any penalties that may apply. Taxpayers who are eligible to participate in this program and do not do so, will be subject to double the amount of interest and penalties that typically apply.

Kansas
The Kansas Department of Revenue will be administering an amnesty program for delinquent taxes (i.e., income, withholding, sales, privilege, severance, estate, liquor, cigarette, tobacco products) September 1 through October 15, 2010. The program only applies to due and unpaid tax liabilities for periods ending on or before December 31, 2008. If the tax liability is satisfied during the amnesty period, the Department will abate interest and penalties.

State Amnesty Programs At-a-Glance

¹ 50% interest reduction if you are reporting a tax liability previously unknown to the Department of Revenue or are responding to a Letter of Inquiry, self-audit or self-analysis. 25% interest reduction if you are responding to a bill, delinquency, audit, or other assessment issued by the Department of Revenue.
² Out-of-state retailers will not have to remit use tax on sales made to purchasers in Oklahoma prior to registering under this initiative.
³ Streamlined Sales Tax amnesty program does not include use tax due on purchases or any other taxes.

Adequate Records Essential for Sales Tax Audits

NY

The New York State Department of Taxation and Finance has stepped up its efforts to audit cash businesses (i.e., bars, delis, repair shops, restaurants, etc.) for sales tax compliance. The State believes that a large number of cash businesses are significantly underreporting taxable sales and failing to remit the proper amount of sales tax. One issue consistently being raised by the State’s auditors is whether these businesses have adequate records with which to conduct an audit.

The sales and purchase records of any business should provide sufficient detail to independently determine the taxable status of each sale or purchase and the amount of tax due or paid thereon. In other words a business must maintain records to sufficiently verify all transactions for the period being audited. Records, whether in paper or electronic form, must be dated, maintained in good order, and kept for at least three years.

If the State determines the records of a business are incorrect, inadequate, or not in an auditable form, the tax auditors can then use any information available to determine the amount of tax due, including indirect audit methods such as sampling, observations, or using supplier records. Whether or not an indirect method produces a reasonable or accurate result, the burden of proof is on the taxpayer to provide clear and convincing evidence that the method used is unreasonable or that a more accurate method could have been used.

While this has been an issue predominantly for cash businesses, all taxpayers should take notice that the State is enforcing tax laws more stringently and that records and other information you may have provided to auditors in the past, may not be adequate during your next audit. Given the potential costs associated with refuting the audit results as well as the interest and penalties that may be added to the tax assessment, businesses need to be aware of the State’s recordkeeping requirements and make it a priority to ensure their records meet those standards.

Where “Bad Debts” Get No Credit

NY

Effective July 1, 2010, New York has repealed it’s “enlightened” provisions under Tax Law section 1132(e-1) for allowing either a private label credit card lender or vendor to apply for a credit or refund of the sales tax portion of a bad debt account charged off by the lender as worthless. Under the terms of the repeal, no credit or refund may be claimed on or after July 1, 2010, regardless of the date of the underlying sales tax transaction or the date the bad debt is written off. The former provisions had been effective only since January 1, 2007. The poor economy and an unwillingness to reduce spending has forced the state legislature and governor to make some awkward choices – with the result that it will cost more for businesses to do business in New York.