presents presents Sales and Use Tax Audit Strategies Anticipating Auditor Requirements for Documentation Anticipating Auditor Requirements for Documentation, Samples, Nexus and More A Live 110-Minute Teleconference/Webinar with Interactive Q&A Q& Today's panel features: James Tauber, Managing Director, WTAS LLC , Chicago Steve Oldroyd, Tax Senior Director - Sales & Use Tax, Property Tax, BDO USA , San Jose, Calif. Dan Davis Principal Associated Sales Tax Consultants Sacramento Calif Dan Davis, Principal, Associated Sales Tax Consultants , Sacramento, Calif. Jen Galbreath, Senior Manager of Indirect Taxes, Amazon.com Inc. , Seattle Thursday, September 23, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 10 am Pacific P ifi You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrants.
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Sales And Use Tax Audit Sales And Use Tax Audit Strategies Webinar Sept. 23, 2010 James Tauber, WTAS LLC Steve Oldroyd, BDO USA soldroyd@bdo.com james.j.tauber@wtas.com Dan Davis, Associated Sales Tax Jen Galbreath, Amazon.com Inc. Consultants jgalbrea@amazon.com ddavis@astc.com
Today’s Program Today s Program Preparing For The Audit Slides 6-15 ( James Tauber ) Midstream Management Of The Audit Slides 16-22 ( Steve Oldroyd ) What Auditors Typically Look For Slides 23-28 ( Dan Davis ) ( ) Post-Audit Procedures Slides 29-39 ( Dan Davis ) A Amazon.com Inc. Experience I E i Slid Slides 40-50 40 50 ( Jen Galbreath ) 5
6 James Tauber, WTAS LLC Preparing For The Audit Th A di F i P
Objectives For This Section • Assignment of auditors • Auditor’s pre-audit research • Your pre-audit preparation/research • Initial contact with auditor • Preparation for the opening conference 7
State’s Procedures For Assigning Auditors • • Capacity Capacity • Geographic proximity to the taxpayer/records • Industry experience • Overall experience relative to the complexity/size of the company 8
Scope Of Auditor’s Pre-Audit Research • General info Google Google o o Company Web site o Public financials o Advertising (Yellow Pages, billboards, representatives, o etc.) Press releases for recent activity (e.g., dispositions, o acquisitions) ) Visit retail locations o Store Retail Web site 9
Scope Of Auditor’s Pre-Audit Research (Cont.) • Other tax filings Tax returns Tax returns o o Notices o Statement of accounts o Nexus questionnaires o • Prior audit work papers 10
Your Pre-Audit Preparation/Research • Audit starts before the auditor calls Know where the skeletons are Know where the skeletons are o o Credit/refund opportunities o Consider what type of sampling/sample periods o Know what issues have occurred and could affect the audit o In what condition is your exempt documentation? o How long it will take to get information? o Review recent changes in law for potential o exposures/opportunities (e.g., amnesty) 11
Your Pre-Audit Preparation/Research (Cont.) • • Develop a proposed audit plan/work program Develop a proposed audit plan/work program • Communication to the business Let information resources know that you will be contacting o them Let the facility know there will be an auditor in the house o Remind employees not to talk to auditors o 12
Initial Contact With The Auditor • Confirmation of companies and periods • Confirmation of information request/process • Confirmation of timing of field audit and anticipated return visits g p • Inquire about their level of experience • Discuss the auditor’s audit plan and address any gaps compared with your plan • Set the tone 13
Preparation For Opening Conference • Develop an outline of what to cover Timing o Records o Rules of the road o Communication plan Communication plan o o Process for resolution of issues o • Availability of requested documents • B Be familiar with tax requirements/processes f ili ith t i t / • A few words about sampling agreement… • Determine your rapport with auditor 14
In Summary • Be prepared … • Know your issues • Know your issues • Have your resources lined up • Review your documentation • Develop an audit plan… • The more your prepare in advance … • The smoother the audit will go • The more likely you will achieve good results The more likely you will achieve good results 15
Midstream Management Of The Midstream Management Of The Audit St Steve Oldroyd, BDO USA Old d BDO USA 16
Sales Tax Examination Sales Tax Examination Analysis of revenue streams • Taxability of products and services • Destination-based sourcing • S tate and local tax rates (2.9% to 10% ) • S tatutory exemptions • Exemption certificates • Exemption organizations 17
Use Tax Examination Use Tax Examination • Fixed assets • Accounts payable • Inventory withdrawals • Inter-company • Mergers and acquisitions 18
Statistical Sampling Statistical Sampling S ampling trends • Electronic vs. manual • S S tatistical vs non-statistical tatistical vs. non statistical 19
Transaction Sampling Transaction Sampling tatistical sampling • Block sampling li k Bl • S 20
Block Sample Block Sample • S S electing a period of time elect g a pe od o t e • Grouping • Most recent transactions 21
Statistical Random Sample Statistical Random Sample Advantages of a statistical random sample • Basic premise that every item in the population has an equal chance of being selected • The sample result is obj ective and defensible • Results can be evaluated and supported mathematically. Results can be evaluated and supported mathematically. • S tandard deviations and confident levels of the results can be computed computed. • Multiple samples or strata can be made and evaluated separately, or combined and evaluated together or combined and evaluated together. 22
Wh t A dit What Auditors Typically Look For T i ll L k F Dan Davis, Associated Sales Tax C Consultants lt t 23
Auditors’ Preliminary Objectives • Review internal file; determine points of interest • Review reporting history; compare with prior audit for significant differences • Determine if fixed asset dispositions and/or changes in entity are indicated 24
Purchases Subject To Use Tax • Overall, largest area of audit assessment • Untaxed purchases of fixed assets, including computer hardware & software • Untaxed purchases of supplies • Inventory withdrawals 25
Questionable Exemptions And Credits • • Reviewed on sample basis Reviewed on sample basis • Based on sample, a percentage of disallowance is computed. 26
27 Additional Taxable Sales differences assessed Total sales reconciled – differences assessed Indirect audit methods Total sales reconciled • • •
28 Other Areas Of Auditor Interest Changes in entity or sale of division Sales of fixed assets Sales of fixed assets • • •
29 Dan Davis, Associated Sales Tax Post-Audit Procedures Consultants
Post-Audit Procedures In General • • Post audit administrative protest processes vary widely from state to Post-audit administrative protest processes vary widely from state to state. Some states allow only one level of administrative appeal before the case must proceed to court. Most provide two levels, and a few provide three. The details and procedures differ greatly among the provide three. The details and procedures differ greatly among the states and should never be taken for granted. 30
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