Sales Tax Recovery Can Help Cash Flow in the Time of Covid-19
AGILE CONSULTING GROUP
May 28, 2020
Sales tax recovery reviews, sometimes known as sales tax reverse audits are a great way to generate cash flow at any time, but the disruption Covid-19 has caused worldwide has forced many businesses to reevaluate. Will reopening generate the volume of sales businesses had pre-Covid-19? Will our economy tip into a recession? Will businesses be forced to trim costs or even payroll to remain profitable? Businesses are facing these and many other pressing questions over the coming months. One thing is certain, businesses have found ways to adapt and do more with less over the past 10+ weeks. Maybe it is time to reconsider recovering overpaid sales taxes.
Many of you are familiar with sales tax recovery reviews. Quite a few of you have enjoyed success in
prior sales tax recovery reviews. We
view sales tax recovery reviews as something akin to a doctor’s checkup. Maybe they don’t need to occur on an annual
basis (who are we kidding, we all know we’ve missed one from time-to-time), but
every few years it is imperative to go in for that checkup to make sure everything
is still functioning properly and to address any concerns we have. That’s the same opportunity sales tax
recovery reviews offer your business as it relates to sales tax.
Policies, processes and procedures are key to any business. Over time, even the best planned policies, processes
and procedures have slippage and need to be revisited. In sales tax particularly, you must review
your company’s policies, processes and procedures on a regular basis.
Why should sales tax recovery reviews occur on a regular basis?
Tax laws change
State Legislatures pass new laws every year, sometimes in multiple sessions. These changes add new sales tax exemptions, eliminate some and amend others. Sales tax is a moving target. Not only do you have to keep an eye on new legislation, but taxpayers are constantly requesting guidance or rulings from the State Revenue Agencies. Court cases are another source of change. Sometimes, the underlying law itself doesn’t change, but the interpretation of it may. These changes in interpretation are more difficult to keep up with because they seldom receive any publicity, and some are even private rulings. We’ve fought hard to win private rulings from a number of states because of the very fact that they are not public information.
Processes change
Are you making a new product, offering a new service or assisting clients
in a new state or industry? If so, your
sales tax processes must reflect those changes.
Maybe the process change isn’t related to a shift in your company’s operations
but is due to streamlining or is technology related. Have you gone from a manual, paper-based
purchase order system to a software-based one?
Are we sure that new electronic purchase order has all the right fields
and information on it to help with sales tax compliance? Even if it does, it’s possible that the
people using it may not understand all the implications and importance of the
information they place on that form.
People change
People can affect sales tax in a number of ways. When we work with clients who have multiple locations,
there are always some locations that are better at taking advantage of the
sales tax exemptions for which they qualify and other locations that are not.
Inevitably, that difference comes down to the people making decisions at those
different locations. When people change
roles, through no fault of their own, there is always a learning curve. Staffing and roles are frequently changed and
seldom is sales tax part of the new job training. People are often left to fend for themselves regarding
sales tax. Some never get there with
sales tax because they view it as an afterthought. If your company has experienced new hires or
promoted people from within to roles that impact sales taxes, then a sales tax
recovery review is an ideal way to understand their strengths and weaknesses in
taking advantage of sales tax exemptions.
Our sales tax recovery reviews provide granular detail about which items
sales taxes are being overpaid on. We
also provide custom-developed taxability matrices, with citations included, for
all major categories of purchases that we find in our reviews. These are excellent training and reference
materials for ongoing sales tax compliance.
Software gets updated
If you’ve experienced a change in your company’s software systems, you
know what a process that can be. Often it
takes months and involves cross-departmental teams with members concerned about
how the changes will impact their department’s operations. How much attention does sales tax get? Even if it is a high priority item and is
given much consideration, the real world often presents situations not covered
during implementation or testing. We
recommend conducting a sales tax recovery review after the new program, or updated
existing software, is up and running.
You’d rather discover a problem in the first 90 days than in a state
sales and use tax audit 3-4 years down the road that could result in a large
assessment.
Vendors or suppliers go through of these changes above as well
OK, so maybe none of these things have changed at your company. Are you sure you major vendors or suppliers
haven’t made any of these changes?
Something we see frequently is a longtime vendor or supplier of one of
our clients begin charging sales tax on an account that has been set up to be
non-taxable for years. Confusing,
right? When we call to re-provide the
exemption certificate(s) we learn that a new account rep has been assigned to
the account or they have updated the ERP system and all accounts have been
defaulted back to taxable status. It
happens more often than one would think.
How often should a sales tax recovery review take place?
We recommend engaging a sales tax consulting firm to review your purchases every 2-3 years. Statutes of limitations vary from state-to-state, but many states have clustered around the 36-month statute of limitations for sales and use tax recoveries. We believe that you should never leave any of these periods unreviewed. Remember, it will take any sales tax consultant you select some time to conduct the analysis and prepare their findings. We strive to turn around all of our reviews in 60-90 days from the date we begin reviewing the invoices, depending on the size of our clients’ operation and the volume of records to review.
The timing has never been better to conduct a sales tax recovery review. Overpaid sales taxes are sitting there waiting for you to recover them in the states in which you operate. If you don’t request a refund of those taxes from your State Revenue Agency within the open statute of limitations, the state gets to keep your tax dollars whether or not they were paid appropriately. Don’t let the state keep tax dollars that will have a positive effect on your company’s cash flow.
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