The Auditors are Coming ~ Are You Ready?
To quote one of our Founding Fathers, Benjamin Franklin, “… nothing is certain except death and taxes.” If he only knew how well this statement would endure the test of time.
Generally, two-thirds of a state’s revenue comes from Indirect Taxes, most of which is in the form of sales, property and payroll, among others. With the prior disruptions largely behind us, companies and their employees are getting back to work, and that includes our state Departments of Revenue and their auditors. Consequently, all industries should ready themselves for an audit.
“In the world of tax, the best defense is a great offense.”
THE TALE OF THE TAIL
Much to the delight of state auditors, there are numerous industries that do not anticipate being “found” by a state for unreported or under-reported sales or use tax. For example, it’s not a myth that auditors drive by executive airports and note the tail number of private jets and planes and research the state that the company registered the jet with for FAA purposes.
Depending on state specific statutes and regulations it is incumbent upon the company that owns the corporate jet to review, analyze and determine whether a use tax is due for the time the jet is hangared in a particular state, taking into consideration affiliate nexus, repairs, fly-away exemptions, etc.
Frequently, corporate tax departments and outside tax counsel are focused on the taxability of the acquisition of the jet itself, to the exclusion of the more mundane yet material exposure related to jet hangaring.
Voluntary Disclosure Agreement
If after a self-review or internal audit your company determines it has sales or use tax exposure, depending on qualifying circumstances, a Voluntary Disclosure Agreement (VDA) may be an option.
Although eligibility and benefits vary by state, some benefits of a VDA include a limited look-back period, full penalty abatement, and the ability to file all outstanding returns via a schedule instead of individual monthly returns.
PENALTY ABATEMENT REQUESTS
If it turns out that your company is ineligible for a VDA, perhaps a straightforward penalty abatement request is more suitable. With this type of request, whether it is filed via online or email, the Department will consider the appropriateness of a “reasonable cause” or “good faith” position to determine whether to grant a penalty waiver request.
Unfortunately, it should be noted that some states, Indiana for example, limits its penalty waiver approvals to a single month, some like Wisconsin require a request be filed within 60 days from the date of notice, or in the case of Washington state, as relayed by an auditor, anything short of a “volcanic eruption where the lava flow impacted the physical office” will be grounds to deny a penalty request.
TANGIBLE NEXT STEPS
Libertas’ professionals have extensive experience with small business remote online seller compliance and exposure issues, as well as those related to manufacturing, aviation and others. Accordingly, we welcome the opportunity to assist you with any Indirect Tax issues related to planning, prevention and mitigation.