Companies must always remember that sometimes, auditors view businesses only as a source of additional state revenue. Companies need someone representing their interests during the entire sales tax audit.
Atlanta, GA -- (SBWIRE) -- 11/03/2014 -- Inflated sales tax assessments can be a result of lost or flawed exemption certificates. Improving state sales tax audit process and reducing audit exposure are some of the apprehensions of most companies. An assistance of an expert in the field like Interstate Tax Strategies P.C is a great help.
It is inevitable that states continually modify their own approach to tax exemption. That’s why it is important to go back to the basics and identify from there how to go about ensuring that tax exemption certification won’t be an issue when it comes to sales tax audit.
Where Do We Get Tax Exemption For
Tangible properties are taxable by default. Being exempted from paying tax for these tangible properties require a number of documentation. The most common types of these certificates are the Resale, Pollution Control / Green Construction, Manufacturing, Agricultural, Research and Development, Government / Not for Profit.
Tax Free without a Need for a Certificate
There are two ways by which an item bought can be subjected to tax exempt. One is by statute and the other one is by use of entity. Those that do not require certificates are those that are being purchased by statute. These are not taxable to anyone. The other type is the purchase that would generally require a certificate for it to become tax exempt. This is what we call exempt by use or entity wherein the items may be taxable in situations outside of the designated use or entity and the seller must inform the buyer of the intended use via the provision of a certificate.
A Change in Paradigm
The biggest mistake some companies make when it comes to this tax exemption rulings is that they fail to identify the changing models in tax exemption. Previously, if an auditor could evidently see a company’s transaction was exempt, for whatever reason, they gave you a whole lot of leeway when it came to documenting it. Majority of the auditors looked at it as a matter of essence over form. In fact, some companies that were mainly wholesalers or had few sales that were tagged as not eligible for exemptions were sometimes passed over by states looking for companies to audit.
With the advent of recession, states who barely recovered were forced to devise ways on how they can make up for lost revenues. The culture of the auditors of looking at the process as a matter of essence over form has completely changed as the current time certificates are far more important over substance. This is the main reason why some companies experience having vendors who are suddenly asking for certificates.
Certificates and the Root Cause of the Problem
There can only be two reasons why certificates can become a problem in sales tax audit procedures. It can either be the certificate is missing or it is deemed invalid. Invalid certificates are those that are seen as incorrect forms, missing seller name, not signed, incorrect seller name, not dated, missing buyer name, expired certificate, incorrect buyer name, missing reason for purchase, missing description of business, and incorrect number of digits in permit.
In ensuring that companies won’t go through all the hassle of penalties, it is crucial that the managers and owners are equipped with enough knowledge and understanding about the processes. It is also important to have someone in the company dedicated to validate the certificates. Each form must be evaluated and all the information on the certificates are correct. There are a number of software solutions available to make these forms electronically accessible. And most importantly, each company should seek the assistance of an expert in the field of state sales tax audit like Interstate Tax Strategies P.C. Companies must always remember that sometimes, auditors view businesses only as a source of additional state revenue. Companies need someone representing their interests during the entire sales tax audit. Don’t become the next victim of an overly zealous sales tax auditor. Let Interstate Tax Strategies’ 26 years of experience be used to level the playing field.
About Interstate Tax Strategies, P.C
When it comes to Atlanta tax services, Interstate Tax Strategies, P.C. is unique in its exclusive focus on interstate sales and use tax. Ned Lenhart, CPA, is President of Interstate Tax Strategies and has been perfecting his tax consulting skills for over 27 years. He started Interstate Tax Strategies, P.C. in 2003 after serving as a Firm Director for Deloitte in its Atlanta office. Prior to joining Deloitte in 1994, Ned was a Sr. Manager with Arthur Andersen in Kansas City, Missouri. Ned also worked for the Missouri Department of Revenue where he was the Director of the Compliance Division and led the state's civil and criminal tax enforcement efforts. He also served as Deputy Director of the Division of Taxation and Bureau Manager for the Compliance Division.