Presenting a live 110-minute teleconference with interactive Q&A Use Tax Accrual: Managing Systems and Personnel to Address Tax Risk WEDNESDAY, MARCH 27, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Mike Dillon, President, Dillon Tax Consulting , Annapolis, Md. Thomas Smith, Partner, HoganTaylor , Tulsa, Okla. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Use Tax Accrual: Managing Systems and Personnel to Address Tax Risk Seminar March 27, 2013 Mike Dillon, Dillon Tax Consulting Thomas Smith, HoganTaylor mike@dillontaxconsulting.com tsmith@hogantaylor.com
Today’s Program Importance Of A Use Tax Accrual Focus Slide 8 – Slide 11 [Mike Dillon] Improved Interactions With Systems Slide 12 – Slide 23 [Mike Dillon] Leveraging Various Tools In Use Tax Accrual Slide 24 – Slide 26 [Mike Dillon] Georgia-Pacific Experiences With, Approaches To Accrual Slide 27 – Slide 38 [Steve Peck]
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Mike Dillon, Dillon Tax Consulting IMPORTANCE OF A USE TAX ACCRUAL FOCUS
Managing Risk: The Need To Focus On Use Tax Accrual 9 • Sales and use tax audits begin with purchases. – More important than ever to focus on purchases – Auditors know use tax = low-hanging fruit – D.C./state focus on use tax compliance – Colorado/Tennessee notification requirements – Use tax audits are a referral source for identifying unregistered vendors
Managing Risk: The Need To Focus On Use Tax Accrual (Cont.) 10 • Most companies lack an internal tax function focused on sales and use tax. – Most companies focus on revenue and customers. – Reactive compliance – “Don’t know what we don’t know” – When I ask the question = “deer in the headlights”
Managing Risk: The Need To Focus On Use Tax Accrual (Cont.) 11 Most companies lack a use tax accrual process • – So many variables that can affect wrong tax decision or indecision – No internal review of purchases for proper tax application by vendor – Internal review placed in hands of non-tax personnel – Vendor incentive and A/P incentive – Potential for overpayments as well as exposure – Decentralized or complex purchasing means even more risk
Mike Dillon, Dillon Tax Consulting IMPROVED INTERACTIONS WITH SYSTEMS
Improved Processes And Interactions With Systems 13 • Manual use tax accrual process: Internal review of purchases for proper tax application by vendor and/or account – Goal is uniformity and a process – A/P must apply tax laws and keep up with the constantly changing product taxability rules. – Incentive is expedient processing, not compliance
Slide Intentionally Left Blank
Improved Processes And Interactions With Systems (Cont.) 15 • Manual use tax accrual process: Internal review of purchases for proper tax application by vendor and/or account (Cont.) – Inaccurate reliance on human knowledge and manual processing – Staff turnover – Inaccurate recordkeeping in turn attracts tax auditors.
Improved Processes And Interactions With Systems (Cont.) 16 • Regularly review purchase accounts – Large purchase accounts – Special purchase accounts – Specific vendors • Sales and use tax matrix – Manual or automated process – Consistency and uniformity
Improved Processes And Interactions With Systems (Cont.) 17 • Sales and use tax compliance software – Automated tax decision, rating and return preparation – Keep accounting personnel focused on higher-value work – Seamless integration with accounting/billing – Data archived for audit purposes
Improved Processes And Interactions With Systems (Cont.) 18 • Sales and use tax compliance software: Few options on market – Most solutions focus on sales transactions, not purchases – again, this is why there is audit focus on the purchases. – Even with automation, there is human involvement, which always leads to the potential for error. – Minimize the number of humans involved: Purchase order vs. A/P coding
Improved Processes And Interactions With Systems (Cont.) 19 Sales and use tax compliance software: Requirements • – Systems must address whats, hows and whens of a transaction. – Some purchases are exempt by statute. – Some purchases are exempt for resale, and a resale certificate is required. – Some purchases are exempt by use, and an exemption certificate is required. – Some purchases are exempt based on interstate commerce, and consideration must be given to multiple jurisdictions and when title is transferred.
Improved Processes And Interactions With Systems (Cont.) 20 • Sales and use tax compliance software: Requirements (Cont.) – Fixed asset and expensed/service purchases through AP – Inter-company/interstate transfers for which tax was not previously paid/underpaid – Previously untaxed internal consumption items taken out of inventory – Samples and promotional items distributed throughout country
Improved Processes And Interactions With Systems (Cont.) 21 Sales and use tax compliance software: Requirements • (Cont.) – Determine whether use tax is due, based on decision matrix – Determine if appropriate sales tax was charged based on jurisdictional logic, product and use – Generate required use tax based on location and rate – Generate information into GL for accrual and remittance – Generate reporting for compliance and audit – Capable of accruing difference if vendor undercharges – Capable of issuing short-pays and credits
Improved Processes And Interactions With Systems (Cont.) 22 • Sales and use tax compliance software: What systems are available – CCH CorpSystem Sales Tax – Vertex – Taxware – BillSoft EZTax – TaxAutomation and leading integrators can assist
Improved Processes And Interactions With Systems (Cont.) 23 • Sales and use tax compliance software: System and process considerations – Must consider how these systems integrate with your ERP or accounting platforms – Must identify and capture key data elements needed – Must pass purchase data elements such as GL account, vendor, jurisdiction, vendor tax applied – Must create transactions for unique items such as inventory or sample removal
Mike Dillon, Dillon Tax Consulting LEVERAGING VARIOUS TOOLS IN USE TAX ACCRUAL
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