Use & Sales Tax Audit for Compliance

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Sales and use tax is one of the most complex forms of taxes, and can be intimidating, especially for new businesses. More so, if you are an e-commerce company operating in multiple countries.

The recently adopted economic nexus laws arising from the Supreme Court decision in South Dakota v. Wayfair has fundamentally changed the compliance guidelines. Because of this ruling, the need for a professional is a must and highly recommended because the lack of knowledge of online levied sales tax business taxation audits can cause you problems in the form of penalties and fines.

The fact is, many businesses overpay their sales and use taxes. Forbes says 93% of business owners overpay their taxes.

HRSS can help its clients mitigate risk of overpaying sales taxation, as well as the stress related to being subjected to a sales tax audit. While some companies will deliberately err on the conservative side to reduce the risk of underpayment, some businesses are unaware of their overpayment. Tight deadlines, complex regulations, and contradictory guidance from taxing authorities can lead to legitimate errors in reporting, calculating, and paying sales and use taxes.

When errors in calculating sales tax occur, it results in underpayment of sales and use taxes, and businesses receive tax assessments which the difference must be repaid. Depending on the laws and regulations governing the tax authority, the tax assessments may include back taxes, interest, and penalties that the business allegedly owes. Unfortunately, many state and local governments have undertaken an aggressive form of tax enforcement that includes sales and use tax audits of businesses accused of sales tax deficiencies.

Sales tax audit representation and compliance reviews from HRSS can help businesses facing a sales tax audit or other sales tax dispute with state or local tax authorities. Using its experience across industries and sectors and its in-depth, real-world understanding of tax policies and tax law, our professionals can help clients withstand or even prevail in audits.

More importantly, we can identify the tax statutes and exemptions that apply to the client’s business and develop a tax compliance plan that reflects the business’s true sales and use tax liability. This allows clients to focus their time and labor on their businesses rather than sales tax compliance.

HRSS provides a wide range of sales and use tax services to clients, including:

  • Audit representation
  • Compliance review
  • Redetermination support

HRSS’s Sales and Tax Audit Team is Prepared to Help Your Business

HRSS has extensive experience with sales and use tax audits across many industries and throughout many jurisdictions. By taking a deep dive into your sales and use tax compliance strategies, identifying potential risks and weaknesses, and representing your interests competently at the sales and tax use audit, HRSS can obtain a fair outcome that reflects your sales tax liability accurately. Equally importantly, we can develop a sales tax compliance plan that reduces the chances of a future audit and provides a clear and defensible position should another audit occur.

Our Sales and Use Tax Audit team provides guidance and representation to businesses facing sales and use tax audits. Contact us today to learn more.

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AUDIT REPRESENTATION

Complex, industry-specific, and requires seasoned experience.

Audit representation leverages its tax team’s industry insight and intimate knowledge of state audit procedures to realize assessment reductions for clients. Conducting a compliance review is an integral feature of our services that enables us to pinpoint any weak areas in our clients’ tax strategy and estimate their exposure. Such attention to detail forms the foundation of our thorough audit strategy, the execution of which leads many clients to a minimization of tax assessment.

Are you facing an audit?

Proper representation makes a difference. Most business owners are simply not equipped with the knowledge or experience to appear before a tax agent or tax board conducting an audit. For many, the allegations contained in the tax assessment along with the burden of an audit are enough to convince them to pay the tax assessment just to make the problem go away.

However, our experience is that businesses assessed with an audit deficiency will remain in the crosshairs of the tax authority. As a result, the first audit may be the first of many successive audits when a business concedes that a tax payment is due. On the other hand, we have found that performing the audit correctly the first time can lead to assessment reductions and a reduced likelihood of a subsequent audit.

HRSS has represented clients at many audits where the records plainly supported a reduction in the tax assessment along with a waiver of interest and penalties. When we undertake an audit representation, it leverages insight into its client’s industry and detailed knowledge of state audit procedures to identify the source of the tax dispute.

This attention to detail guides HRSS’s audit strategy. By identifying where the tax authority has misconstrued its regulations, misapplied its policies, or miscalculated the client’s tax, HRSS can argue for an assessment reduction or even a withdrawal of the tax assessment altogether.

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COMPLIANCE REVIEW

The Pre-Audit tool of choice to detect potential issues.

In a business climate characterized by states’ heightened efforts to realize additional revenues, entities increasingly find themselves facing sales and use tax audits – the outcome of which, often results in a deficiency assessment. The compliance review, which detects potential issues and offers the opportunity to correct any material misstatements before an audit, has become the pre-audit tool of choice for numerous clients.

When retained for a sales tax review, the HRSS team of tax professionals focuses heightened attention on every aspect of a company’s internal processes and tax procedures, ensuring enhanced success with future audits and steering clients clear of costly assessments and penalties.

When preparing for an audit, HRSS’s clients often benefit from a comprehensive sales tax compliance review. This review is not limited to the issue identified in the tax notice. Rather, this compliance review by HRSS looks at the entirety of the client’s sales and use tax process to identify risks and weaknesses in its procedures for reporting, calculating, and paying sales and use tax.

Based on this review and HRSS’s experience across a wide range of industries and sectors, HRSS can accurately determine the client’s sales tax exposure. If the results of the compliance review show that there were, indeed, issues in how the sales tax was reported, calculated, or paid, material misstatements can be corrected before the audit. This opportunity to identify problems and correct the record prior to an audit makes compliance review one of the most effective tools for clients facing a sales tax audit.

Just as important as the bottom-line outcome of the compliance review, however, is the opportunity to review and improve a business’s tax procedures. This process reduces the risk of future audits. It also improves the likelihood of success if subsequent audits are conducted by guiding clients toward practices that will improve compliance and eliminate tax deficiency assessments and penalties.

A sales tax compliance review from HRSS includes:

  • Reviewing recordkeeping and accounting methods.
  • Identifying taxability issues for the client’s goods and services sold or purchased.
  • Assessing the preparation process for sales and use tax returns.
  • Developing recommendations for changes, if applicable, to the current procedures.
  • Estimating potential sales and use tax liability exposure resulting from an audit.

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REDETERMINATION PROCESS

Take the smart course of action. Final audit results are not always final.

HRSS’s work does not end with the completion of an audit. If an audit finds that a business owes a tax deficiency, an appeal can be filed to re-determine the tax assessment. Despite the characterization of audit results as “final” by many state and local tax authorities, this appeal is a right. Moreover, it is often the best course of action for reducing or eliminating a tax deficiency assessment.

It is not uncommon for companies to overpay tax. Sales taxes can be misapplied or miscalculated for many reasons. For example, if a business purchases goods that a supplier previously paid sales tax on, the business may have overpaid its sales tax. Similarly, contradictory sales tax regulations might cause a business to double pay sales taxes or apply the wrong sales tax rate to its goods.

Any company whose audit results in a deficiency has the right to an appeal – also known as a redetermination of tax assessment. Even when a sales tax deficiency is owed, a redetermination can reveal that the deficiency is less than the audit assessed due to offsetting overpayments, miscalculation of the tax rate or taxes owed, or misapplication of sales and use tax to non-taxable goods or services.

Representation during a redetermination by HRSS can identify such errors, miscalculations, or offsetting overpayments to reduce a client’s tax liability, potentially down to zero, and earn a waiver of penalties and interest.

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