As Hurricane Earl moves out of North Carolina, the state auditor moves in on ecommerce businesses. The state recently offered 450 online merchants amnesty if they agreed to collect sales tax on all future Internet sales. As of August 26th, only a few dozen have accepted the sales tax amnesty offer, which has been a red flag to North Carolina state auditors.
According to a North Carolina's Department of Revenue (DOR) spokesperson, those online merchants who elected to forgo amnesty will be under examination by the DOR. They will prioritize their resources and begin sales tax audits immediately. Click here to read full article.
Managing sales tax for e-commerce or brick-and-mortar businesses is becoming more confusing, time consuming and costly every day. You are probably wondering is there any way to simplify sales and use tax compliance or avoid future sales tax audits?
You can simplify the process by choosing an automated solution that will help you weather the storm of a sales and use tax audit and accurately and effectively manage sales tax compliance within your e-commerce application.
Did you know that you are obligated to collect and remit sales tax where you conduct business? Do you fully understand nexus and the potential impact on your businesses if you don’t understand it?
If the answer is no, take a moment to discover how simple it is to manage nexus obligations and become sales tax compliant. By fully understanding this obligation, your business will ultimately reduce its exposure to future negative sales tax audits.
Paying sales tax may be inevitable, but the hassle is not. Selecting a web-based transactional tax management solution that performs behind the scenes of financial or ecommerce applications is critical to comprehensively automate the sales tax compliance function. The selected service should work seamlessly behind the scenes, should integrate with your existing business financial application and must automate the entire tax compliance functions of your business.
For those of you who do not know or have not heard of the recent changes to legislation, recently US representative William Delahunt introduced the "Main Street Fairness Act" to Congress which includes language that would allow states to collect sales tax for online purchases. Although the bill's proponents claim it is designed to promote simplification and fairness, passage of the bill would initiate radical changes to the administration and collection of sales and use taxes.
On July 1, 2010 the bill was referred to the house and if passed it will go to the senate for approval. So what does this mean for your business? Well, currently the Streamlined Sales and Use Tax Agreement (SSUTA) calls for the voluntary collection and remittance of sales tax in each member state, the Main Street Fairness Act would mandate it for all businesses. See a list of SST member states here.
The challenge is that the act would require businesses to conform to thousands of sales tax laws, which vary widely from one city, one county, and one state to another. Businesses, whether online merchants, brick and mortar or catalog commerce will need an automated sales and use tax solution that will eliminate the challenges of transactional tax compliance.
Avalara is Microsoft’s Software-plus-Services Partner of the Year for 2010! Avalara was chosen out of an international field of nearly 3,000 top Microsoft partners because Avalara has consistently delivered market-leading customer solutions built on Microsoft technology, and has done so since 2004.
Allison Watson, Corporate VP, Worldwide Partner Group, Microsoft Corp. proclaims “Avalara’s AvaTax created an enterprise-level solution for small and medium businesses that has transformed the sales tax compliance process through powerful decision-making and calculation capabilities. Avalara’s on-demand system delivers quick and accurate tax calculations while driving down customer costs.”
“This recognition from Microsoft demonstrates that Avalara has moved from leader in an important niche market to a player in the international business marketplace,” says Scott McFarlane, Founder and CEO of Avalara. “Since 2004, we have worked closely with Microsoft to ensure that our products and SaaS services were completely integrated with state-of-the-art Microsoft technology – this award is the prominent acknowledgment of the results of our strong commitment to the Microsoft Partner program.”
The formal presentation of this incredible award will be made at The Microsoft Worldwide Partner Conference (WPC) in Washington DC in mid-July. Avalara's founder and COO, Rory Rawlings, will receive the award and present content during an informative session, Mapping Opportunities in the Cloud with Bing Maps. To learn more about the sessions at WPC, click here.
Developing strategies for managing your sales and use tax will be critical in 2010. The sales tax compliance process is difficult to manage manually and businesses must be aware of the actions that lead to sales and use tax audits as state and local governments are increasing their audit numbers each year.
In just 30 minutes, you can learn how to protect your business from sales tax audits and save time and money on tax administration. Join our live web-cast and learn to accurately manage sales and use tax compliance.
In just 30 minutes, you can learn how to protect your business from sales tax audits and save time and resources on tax administration. Join this FREE live web-cast and learn strategies for accurately managing sales and use tax compliance within QuickBooks.
The sales tax compliance process can be difficult to manage manually, but businesses must be aware of the actions that lead to sales and use tax audits.
A few actions that can lead to sales and use tax audits can include:
No reporting or under reporting of sales and use tax,
Late reporting or filing of sales and use tax returns,
Reporting a large volume of exempt sales,
Having nexus obligations within a jurisdiction but not registering with that jurisdiction, or
Follow up from a previous sales tax audit
Don’t waste additional time on manual compliance efforts; instead learn how your business resources can focus on revenue generating activities!
So you’ve gone through a sales tax audit, but then decided to pursue a reverse audit to verify that the results of the original audit were in fact correct. Seemingly the results of the original sales tax audit were overly aggressive so really the only option is to engage in a verification process. Part 2 of 'The Reverse Sales Tax Audit' will review how tax professionals perform the actual verification.
Step one: Perform a complete study of all business activities.
Step two: Complete a study and evaluation of your sales and use tax compliance system.
Step three: Analyze the purchasing function to obtain an understanding of how purchases are made and approved.
Step four: Prepare a work plan which will review purchase invoices based on the compliance review where they determine if there is a high probability for the overpayment of tax.
Step five: Review all invoices to determine if they may have been erroneously remitted with sales tax.
Once the reverse audit is complete, the reviewer or tax professional should schedule a meeting with your company and/or management team to present a written report on the audit procedures followed and any findings or recommendations. Additionally, the report will identify the audit procedures that should be followed in order to recover overpaid sales and use tax and any recommendations to improve your sales tax compliance system.
And one final point, before you hire a tax professional to perform the reverse sales tax audit, be sure to outline your expectations in terms of the actual recovery of sales and use tax because in addition to providing recommendations, some tax professionals will actually work to recover the overpaid tax.
If your business has been subjected to a sales and use tax audit, there is a possibility that you are an appropriate candidate for a reverse sales tax audit. Not sure what this means? Well a reverse sales tax audit is very similar to the sales and use tax audit that is performed by state Department of Revenue (DOR) authorities, except the reviewer or tax consultant is seeking the identification and recovery of sales and use tax overpayments remitted to suppliers or filed directly as a self-assessment of use tax. Reverse sales tax audits are conducted at your request by tax professionals, but can be just as cumbersome as a typical audit.
So why are reverse audits necessary? Well there are several factors that may cause a situation where sales and use taxes are overpaid and therefore would make a reverse audit necessary. For instance, many state and local audit authorities have become overly aggressive in assessing tax, penalties, and interest. Additionally, there are often mistakes with regards to exemption certificates. There are instances where sales tax is charged even when the sale should have been exempt, as well as times where businesses inappropriately charge the tax because there were no exemption claims or an invalid exemption certificate was submitted.
An inadequate sales and use tax compliance system may allow sales tax to be erroneously paid as a use tax on purchases and as a sales tax billed to customers on sale transactions, but typically it is not the compliance system’s operational failures but instead the cause of business expansion, corporate downsizing, and employee turnover.
So when is the best time for a reverse sales tax audit? One of the best times for conducting a reverse sales and use tax audit is when there is a significant change to state tax law. Oftentimes state tax law changes are overlooked since sales and use tax exemptions typically don’t apply to local taxes. If your state has recently updated its sales tax laws, a reverse audit can be used to identify any missed opportunities under the new law.
When operating a business you’ll often find that at least a few of your customers or vendors are sales tax exempt and therefore must present you with a copy of their exemption certificates. At that point it is really up to you how manage them, but keep in mind that the processes you use to manage and maintain those sales tax exemption certificates can mean the difference between receiving or avoiding serious penalties during a sales tax audit.
Recently various state Department of Revenue (DOR) authorities have become aware of the untapped sales tax revenue available, so they are closely scrutinizing businesses that have not been managing their customers’ and/or vendors’ sales tax exemption certificates. It is likely that these businesses are unaware that their management processes are faulty, but instead are falling victim to their own administrative negligence in the management of sales tax exemption certificates.
Regardless, in the case of a sales tax audit, state audit authorities will conduct research into a business’ exemption certificate management processes to verify that the certificates issued are completed appropriately by the customer as well as validate the accuracy and completeness of your exempt sales reports.
As mentioned in an earlier post, state Department of Revenue (DOR) websites mention that sales and use tax audits are performed at random and in statistical form. Keep in mind, however, that there are several actions your business may be engaged in that can be a “red flag” to state and local auditors. The compliance process can be difficult to manage manually, but businesses must be aware of the actions that lead to sales and use tax audits.
A few actions that can lead to sales and use tax audits can include:
• No reporting or under reporting of sales and use tax, • Late reporting or filing of sales and use tax returns, • Reporting a large volume of exempt sales, • Having nexus obligations within a jurisdiction but not registering with that jurisdiction, or • Follow up from a previous sales tax audit
Despite what your state DOR website tells you about sales tax audits, you should probably expect a notice if your business is engaged in the aforementioned.
In response to the comment that was directed towards my recent blog posting, Department of Revenue FAQs, I want to provide readers an answer to the question, how do you reduce your exposure to suffering penalties from an audit? As Benthru Audit indicated, regularly paying use tax on out of state purchases is one way of reducing your chances, but the problems lies in correctly calculating the exact sales or use tax rate when a purchase is made. Sales and use tax management can be a cumbersome task if your compliance processes are done manually as these efforts often produce inaccurate results.
I recently found an article posted on articlesbase.com that provides a brief introduction on sales tax compliance as well as a definition of how automated sales tax solution should function. Simply put, implementing a fully automated, end-to-end sales tax management software will minimize sales tax compliance issues and ultimately reduce your exposure to sales tax audits. For those interested, I have included the definition below:
The perfect automated [sales tax] solution would (i) be hooked straight into your transaction engine; (ii) provide the information necessary to assure that the correct tax is being calculated; (iii) save the transaction and tax data for further reference; (iv) be hooked into systems that will allow it to track the transaction through its life cycle; so that (v) any changes made to the transaction are reflected in the system; (vi) on a periodic basis as may be determined by statutes and regulations – compile the data necessary for filing; (vii) generate a sales tax return and report necessary for complying with statutory filing requirements; (viii) make the return available for review and approval by the retailer; (viii) file the return automatically and electronically straight into the systems of the state taxing agencies on the required date, helping the retailer avoid fines, penalties and interest associated with late filing; (ix) obtain from the retailer, funds necessary for payment of tax proceeds; and (x) pay the taxes owed on a timely basis, applying electronic funds transfer methods to assure timely payment at the last possible moment without incurring penalties for late payment.
The sales and use tax audit could quite possibly be the biggest challenge that an individual business will face. In my research of sales tax audits in the U.S., I did find that each state's Department of Revenue (DOR) website provides some information about the sales tax audit process and how to combat the challenges faced. Additionally, there are even a few states that provide a web-page of frequently asked questions (FAQ).
Each state’s DOR website provides various resources that allow users to navigate the sales tax audit process.For the most part the state DOR websites are helpful.You will find answers to ‘some’ of your questions, typically those that are related to the actual audit process and what documentation you are expected to provide.
After scanning through many FAQ sections, I thought to myself, there seems to be one question that has been excluded.If I had just gone through an audit, or was about to experience one, the one question that would immediately surface would be how to ultimately minimize my risk of being audited in the future. Perhaps state DOR departments don't really want you to know how to reduce your chances of being audited. Keep in mind, roughly 46% of a state's revenue is generated from sales tax collection and the average penalty amount resulting from sales tax audits is $34,000 per audit and that is above and beyond any additional taxes and interest.
As an example, in 2008, the state of Kansas performed sales tax audits on more than 2,700 individual businesses. Their total audit assessments for the same year totaled $104,131,813. That is an average penalty and tax amount of $38,000 per audit. Now with Kansas' budget deficit reaching $1.4 billion this year, why would they offer businesses a way to reduce their risk of being audited? Now that just doesn't make sense.
Audits have and will remain a part of the sales tax collection process for a long time to come, but that doesn't mean that you have to be among the "lucky" ones to be chosen. So…how do you reduce your chances of being audited? Don't look to your state DOR for answers!
If you are going through or about to begin the sales tax audit process, it is important to know that there are resources available that will help make the process manageable. I actually came across this publication site the other day, Strafford Publications, which actually provides a unique teleconference that claims to help remove the agony associated with sales tax audits. The previously recorded teleconference, Managing Sales Tax Audits - The Auditors Speak, was first presented on June 10, 2009 and has since been made available for purchase. The 100-minute teleconference provides individual taxpayers insights into and perspectives from state auditors about their requirements and preferences for managing sales and use tax audits.
The panel will give you insights on these and other critical topics:
Expectations and standards for sales and use tax audits.
Measures taxpayers can take to move audits along
Mistakes and missteps by corporate taxpayers that irritate revenue agencies
Conduct and poor documentation the auditors find intolerable
If you have an extra $247.00 and can afford this teleconference on CD, it may be a beneficial investment, although it doesn’t seem to help un-complicate sales and use tax compliance, which in case they didn't realize happens to be the cause for the audit in the first place.
It’s difficult to believe that sales tax audits are performed at random and in statistical form.I’m sure many of you had mixed feelings when you first received notification that you were going to be audited. Common questions that probably arose were “why have I been selected?” and “what will the auditors look for?” But for most of you, one image probably appeared in your head and that was of a sneering, cynical department of revenue (DOR) audit agent seated at a desk, eyes closed, with one hand scanning a document, stopping their pointed finger directly over [insert your business name here], uttering “who’s next?”
For those of you who have that image or a similar image in your head, I’m sorry to say that you are mistaken.Each state’s DOR actually has a systematic approach and method to evaluate and determine those individual taxpayers who are likely a potential risk for under-reporting and/or underpaying sales, use, corporate, and/or withholding taxes.In the complicated world of sales tax, with the constant changes to sales tax laws, rates and jurisdictional boundary lines, and the management of Internet sales tax, it should come as no surprise that the sales tax audit process can be equally complex.
Over the past several months I have been engaged with a majority of state DOR offices and during that time I have researched their sales tax audit processes.Many states were receptive to my research and provided all information requested.There were several states, however, that were not only reluctant to provide information, but downright dismissive of my request.Throughout this blog I will share with you the information that I have gathered, in hopes that it will help you better understand sales tax compliance and the dreaded sales tax audit.
Search This Blog
Subscribe to this blog
That's an RSS feed. Just click on it to receive content updates.
As Hurricane Earl moves out of North Carolina, the state auditor moves in on ecommerce businesses. The state recently offered 450 online merchants amnesty if they agreed to collect sales tax on all future Internet sales. As of August 26th, only a few dozen have accepted the sales tax amnesty offer, which has been a red flag to North Carolina state auditors.
Did you know that you are obligated to collect and remit sales tax where you conduct business? Do you fully understand nexus and the potential impact on your businesses if you don’t understand it? 
For those of you who do not know or have not heard of the recent changes to legislation, recently US representative William Delahunt introduced the "Main Street Fairness Act" to Congress which includes language that would allow states to collect sales tax for online purchases. Although the bill's proponents claim it is designed to promote simplification and fairness, passage of the bill would initiate radical changes to the administration and collection of sales and use taxes. 
Avalara is Microsoft’s Software-plus-Services Partner of the Year for 2010! Avalara was chosen out of an international field of nearly 3,000 top Microsoft partners because Avalara has consistently delivered market-leading customer solutions built on Microsoft technology, and has done so since 2004.
If your business has been subjected to a sales and use tax audit, there is a possibility that you are an appropriate candidate for a reverse sales tax audit. Not sure what this means? Well a reverse sales tax audit is very similar to the sales and use tax audit that is performed by state Department of Revenue (DOR) authorities, except the reviewer or tax consultant is seeking the identification and recovery of sales and use tax overpayments remitted to suppliers or filed directly as a self-assessment of use tax. Reverse sales tax audits are conducted at your request by tax professionals, but can be just as cumbersome as a typical audit. 
When operating a business you’ll often find that at least a few of your customers or vendors are sales tax exempt and therefore must present you with a copy of their exemption certificates. At that point it is really up to you how manage them, but keep in mind that the processes you use to manage and maintain those sales tax exemption certificates can mean the difference between receiving or avoiding serious penalties during a sales tax audit.
As mentioned in an earlier post, state Department of Revenue (DOR) websites mention that sales and use tax audits are performed at random and in statistical form. Keep in mind, however, that there are several actions your business may be engaged in that can be a “red flag” to state and local auditors. The compliance process can be difficult to manage manually, but businesses must be aware of the actions that lead to sales and use tax audits.
In response to the comment that was directed towards my recent blog posting, 
The sales and use tax audit could quite possibly be the biggest challenge that an individual business will face. In my research of sales tax audits in the U.S., I did find that each state's Department of Revenue (DOR) website provides some information about the sales tax audit process and how to combat the challenges faced. Additionally, there are even a few states that provide a web-page of 
If you are going through or about to begin the sales tax audit process, it is important to know that there are resources available that will help make the process manageable. I actually came across this publication site the other day, 
It’s difficult to believe that sales tax audits are performed at random and in statistical form.
Powered by Compendium Blogware