SALT Newsletter - Fall 2012

Thank you for your continuing interest in our State & Local Tax e-newsletter. Beginning in August, we will publish our newsletter quarterly. Our focus will be on the predominant state and local tax issues that we believe many of you face on an ongoing basis. As always, we will discuss ideas and solutions designed to help you manage your risk and maximize your wealth.

State Amnesty Programs At-a-Glance

State Amnesty Period Benefits
Kentucky
Sometime in 2013
50% of Interest & Penalties waived
Maine - use tax
Oct. 1 to Nov. 30, 2012
Penalties waived
Ohio Consumer's use tax
Oct. 1, 2011 to May 1, 2013
Interest & Penalties waived(1)
Rhode Island
Sept. 2 to Nov. 15, 2012
25% of Interest & Penalties waived

(1) Depending on specific circumstances. For additional informamtion on Ohio's consumer's use tax amnesty program, click on the following link: http://tax.ohio.ogv/divisions/sales_and_use/idenx.use.stm

 

State and Local Tax Checkup

As summer draws to a close, and we reminisce about vacations, look forward to our children returning to school or ponder the upcoming football season, now is the perfect time to determine whether your company has been in compliance with the tax laws of the various state and local jurisdictions where you are doing business. This may be the last thing you are thinking about or want to be thinking about right now, but in a short amount of time, your focus will turn to year-end planning, financial statements and the holiday season. By reviewing the following areas now, you can take the necessary steps to manage your state and local tax risk and minimize any potential exposure, before the situation spins out of control.

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QUESTIONS? NEED MORE INFORMATION?

Contact one of the Tronconi Segarra & Associates State & Local Tax Services Team Leaders:

David E. Werth J.D., CPA
Partner

Andrew J. Toth CPA
Principal

Thomas E. Mazurek, Jr. CPA
Principal


State and Local
Tax Services

Audit Representation
Reverse Audits
Nexus Review
Voluntary Disclosure
Research & Analysis
Managed Compliance Agreements
Sales Tax System Development
Outsourcing
Merger & Acquisition Planning
Compliance Management

Nexus

Identifying where your company is “doing business” is critical to determining its filing responsibilities for state and local tax purposes. Nexus is the minimum connection or link between your company and a state seeking to tax your company. This minimum connection is typically established by having a physical presence in a state, such as owning or leasing property…offices, a warehouse or distribution center or a manufacturing facility. However, nexus can also be established by just the presence of employees, independent contractors and/or other affiliates who are soliciting sales or performing services (i.e., installation, repair, maintenance, consulting, etc.) on behalf of the company.

In recent years, states have been aggressively moving to expand the scope of their nexus provisions, in order to require more out-of-state companies to register and collect/pay taxes on their sales and other business activities. Many states believe that simply having an economic presence within their borders is sufficient to establish nexus for income tax purposes, while other states are passing tax laws based on alternative theories that stretch the meaning of physical presence and seek to create nexus based on your connection with people and other companies within their jurisdiction. Unfortunately, each state has varying standards or tests for determining nexus, which are typically different depending on the type of tax in question…income tax, sales & use tax, property tax, etc., making this an especially difficult issue to navigate and address.

Compliance

In addition to determining where else you should be registered and filing tax returns, you need to be concerned with the returns you are already filing in various state and local jurisdictions across the country. Your company may have monthly, quarterly, semi-annual or annual filing requirements for sales & use, income/franchise, gross receipts, licensing, excise, payroll and/or property tax purposes that require an extensive amount of data and other information that needs to be generated and prepared by your financial reporting system and your employees. Who is making sure that the data being used is correct and reconciles to your books and records, that your employees are preparing the returns correctly, and that the returns are being filed and your taxes are being paid in a timely manner?

Aside from the procedural aspects of the compliance process, is your company following the tax laws of the state or locality in which you are filing? Are you charging tax on your sales correctly or sourcing your revenue or income according to the state’s rules or taking advantage of exemptions or credits that might be applicable to your business. Not having an understanding of the tax laws of a state in which you’re filing returns, can lead to potential liabilities or missing opportunities to reduce the amount of tax your company is paying. If the first indication that your tax compliance process is not working is a large tax assessment from a state due to calculating your tax due on sales incorrectly or having your CFO ask you to explain why he and the CEO received tax liens from a state due to the non-filing or non-payment of tax returns, your problems are just beginning.   

Audit Readiness

Finally, you need to prepare yourself for the inevitable fact, that at some point, your company will be audited for state and local tax purposes. States are desperately trying to close budget gaps and looking to generate additional revenue to fund their programs, and audits are one way to accomplish this. Audits are not fun, but they shouldn’t keep you up at night either, as long as you are organized and prepared for the auditors, their information requests and sometimes endless questions. One of the ways to do this is to verify that you have proper documentation (exemption or resale certificates) to substantiate non-taxable sales. Another way is to review the supporting documentation for your tax returns to determine that it is complete and actually reconciles to your financial reporting system. Know where you may have taken an aggressive position on a return and prepare your arguments to support that position and likewise know where you may have the opportunity to utilize refunds or credits to offset any tax that maybe assessed.

Most importantly, know when it is time to consult a third party who may more experience than you or your employees in a particular tax or potential issue. The last thing you want to do is let an auditor discover a large deficiency and not be able to explain what happened or try to haphazardly explain the matter. This will not only hurt your relationship with the auditor but will lead to mistrust and doubt about the company’s business activities.

The steps described above may not be easy and may require some research, discussions with sales, IT and accounting personnel and an extensive review of a large number of tax returns and related information to determine whether your company is sufficiently in compliance with state and local tax laws. However, given the nature of the economy today and the aggressiveness of state and local tax auditors, how can you not take the time to assess your potential exposure and address the financial implications and risk of noncompliance.


Any tax advice included in this written or electronic communication was not intented or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue code or any other governmental taxing authority or agency.

TSACPA