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Got Sales and Use Tax Issues?

Sales and use tax is a significant revenue source for state governments. Historically, sales and use tax has accounted for close to half of all state tax revenue. Sales tax has been imposed on the purchase of tangible personal property since the early 1930s. Use tax was enacted a few decades later when interstate commerce began to flourish. The use tax is reciprocal to sales tax and was imposed on the consumer to provide a level playing field for in-state retailers. This tax eliminated the competitive edge that an out-of-state seller had over an in-state retailer.

Today, products are manufactured and sold much differently than in the past. What was once a tangible product, such as a record, is now available as a digitized product acquired through online “ stores ” such as iTunes. Other examples of new commerce methods include Internet sales, Internet access fees, telecommunications, international trade, electronic data processing and electronic knowledge management. While this new technology is beneficial to the public, state governments have not yet amended their tax laws to reflect these changes, significantly reducing their revenue base for sales and use tax.

In light of this, states are now passing legislation to capitalize on this source of revenue. New legislation that provides for taxing specific services has been enacted and introduced in several states, and increasing numbers of companies are being audited for sales and use tax underpayments. States have also begun taking aggressive positions on gray issues. States have reduced the interest rate allowed on sales and use tax refunds while increasing the interest rate and penalties for underpayments.

The current economic climate has forced companies to reduce costs in order to maintain profitability. In this regard, sales and use tax liability should also be managed. With proper planning, retrospective analysis and compliance, sales and use tax can be controlled. Sales and use tax is transaction-based and directly impacts the bottom line. Many successful companies have aggressively managed their sales and use tax liability, resulting in a net increase to the bottom line. Every year, state governments refund millions of dollars of sales and use tax to industry. Conversely, state governments levy millions of dollars in additional assessments. This indicates how badly industry is struggling with sales and use tax compliance.

Blackman Kallick can help you manage your sales and use tax compliance. We will review your sales and use tax position and develop strategies for obtaining refunds; identify planning opportunities for future transactions; and simplify your compliance via automation or estimation. Our services include overpayment review, audit management, managed audits and compliance, software selection, consulting, tax negotiations, nexus studies, taxability determination matrices, excise tax consulting, merger and acquisition due diligence and compliance.

For more information, contact Jason Parish at jparish@BlackmanKallick.com or 312-980-2959, or your Blackman Kallick representative. Our thanks to Deb Rood for her contribution to this article.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.