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Sales & Use Tax Tips for May 2009
DEALING WITH LOCAL SALES AND USE TAX
We follow the state’s rules. Why Worry about Local Sales and Use Tax?
There are a number of reasons to be concerned about local sales and use tax issues. Local home-rule jurisdictions often vary from the state in their laws, administration and enforcement. Even when the laws are the same, rates vary and special districts or enterprise zones rules further complicate compliance. Additionally, business use tax has become a significant area of audit focus.
As revenues dwindle, revenue departments increasingly look to collect use tax on purchases where sales tax wasn’t paid or wasn’t paid at a rate equivalent to what would have been collected at a local merchant. States and localities may lose an estimated $52 billion in sales taxes due but uncollected on electronic-commerce transactions over period 2007-2012, according to a recent study**.
They want to collect use tax to get that money! When they audit a vendor, they also look to see which customers didn’t pay sales tax, but should have and may select them for audit to collect use tax.
Businesses should know that sales tax is generally their customer’s responsibility, but failure to properly collect and remit it can make it their' own - plus penalties and interest! When audited, failure to file a return gives no statute of limitation protection and can expose your business to an unlimited look-back period.
Additionally, when companies expand into other states or localities, they usually concentrate on sales, marketing and profit. Planning may cover a state’s taxability issues; however, companies can easily miss the obligation to collect a county or city’s local sales tax. This can cost significant time and financial expense. Even if not audited for years, the obligation usually accumulates unless a return is filed to start the statute of limitations.
It is very time consuming and costly to become familiar and comply with the many state sales and use tax laws let alone the varied local issues. The 60+ home-rule cities in Colorado alone provide an excellent example of a tax compliance nightmare. It’s tempting to try and fly under the radar when the complications and costs of compliance are so overwhelming.
However, these issues typically come to light when the company is audited, goes public or is for sale and under contract. Under these circumstances potential buyers may hire a firm to perform a due diligence review and conservatively adjust for past sales ad use tax exposure.
If you are concerned about how your company’s sales and use tax issues have been handled in the past, we suggest performing a Diagnostic Review to identify, quantify and fix problems going forward. Exposure Resolution options can be explored to resolve past hidden liabilities.
Our professionals can help you sort through Exposure Resolution options.
Click here for more Sales Tax Tips or visit our website www.oatax.com. For additional insight on common sales tax concerns, please see the Did You Know? section of our website.
Should you have questions or require assistance please Contact us today or call 1-888-466-2829 to speak with an Olivier &
Associates Sales and Use Tax professional for a no-obligation consultation about your Sales & Use Tax issues.
**Study that was commissioned by the Streamlined Sales Tax (SST) Governing Board and released on April 13, 2009.
* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.
