sales tax is changing. what’s happening & why? client service opportunities andy johnson cpa-...

Sales Tax is Changing. What’s happening & why?

Client Service Opportunities

Andy Johnson CPA- Partner Peisner & JohnsonMike Fleming – Peisner JohnsonRay Bigley -VP Bus DevelopemnetJune 27, 2013 NOT FOR DISTRIBUTIONCONFIDENTIAL© Copyright Avalara, 2013

Market Forces & Evolving Markets

Market Place Fairness Act (67 to 29)

Peisner Johnson - Client Services

Today’s Discussion

$107,000,000,000

$55,000,000,000

Market Forces

Market Forces: State Budget Gap

State Budget Gaps

$12,500,000,000

$23,800,000,000

Market Forces: State Budget Gap

Market Forces: State Budget Gap

Market Forces

Kentucky 1930

46 States, WA DC & Guam

11,000 + Taxing Jurisdictions

Evolving Markets Mobile payments (Affirm, Square, GoPayment, Fortumo, Zong)

Gaming (Mobile Phone, Xbox, PlayStation, Wii)

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Omni channel Markets: Mobile

14

Omni channel Markets: Gaming

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Omni channel Markets: Gaming

Digital Goods – MP3 Files, Movie / TV downloads, Purchased Image, etc.

Virtual Items – Exist within a specified environment. Example -Xbox Live marketplace, MapleStory: Flower bouquets, Game’s weapons

Sheldon’s dilemma from the Big Bang Theory

Next up after Marketplace Fairness ?

Revenue Shortfalls Combined with Changes in CommerceCreate

Market Inflection Points…

Marketplace Fairness Act(67 to 29)

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Marketplace Fairness Acts

– Grants authority to states to require a remote retailer to collect sales tax

– Defines a remote retailer as any seller who makes interstate sales of products or services

– Effectively eliminates nexus for sales tax purposes

– Applies only to remote retailers with annual remote sales in excess of $1 million, but remote sales includes exempt sales

– Requires very little simplification from states, and most of that is only for remote retailers

AUTOMATED RETURNSIt’s not a laughing matter

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Peisner Johnson & Company, LLP

Andrew Johnson & Michael Fleming

Michael J. Fleming

@MikeAtPJCo

I Have Nexus. Now What?

• Webinar will last one hour

• One hour CPE credit available

• Ask a question any time

Agenda

• Founded in 1992

• Registered CPA firm

• State & local taxes only

• Former state auditors & other professionals

• Consult in all states & Canada

Who Are We?

Poll Question

Andrew H. Johnson, CPA

@AndyJohnsonCPA

What is nexus?

Nexus: A connection; a link or tie

Minimum level of physical presence that allows a jurisdiction to require you to register, collect, and remit sales and use tax

Let's Go to Court

Court Cases

• ScriptoGeorgia company used independent sales reps in Florida, and Supreme Court held that it had significant connection (1960)

• National Bellas Hess1967 Supreme Court Case. National Bellas Hess, Inc. v. Department of Revenue of Ill., 87 S.Ct. 1389 (1967)

Court Cases

• Tyler PipeTexas company with no property, offices, or employees in Washington. Supreme Court agreed that activities created nexus and assessment stood (1987)

• Quill CorporationFor sales and use tax purposes, the Supreme Court held that a taxpayer must have a physical presence in the state. Quill Corporation v. North Dakota, 112 S.Ct. 1912 (1992)

Nexus-Creating Activities

Obvious

• Buildings, property

• Employees

Less Obvious

• Independent sales reps

• Sub-contractors, agents

• Installation, training, maintenance

• Rented or leased property

Generally:

• Register

• Collect the sales tax/pay the income tax

o Collect a proper resale certificate in lieu of tax

• File regular tax returns

I have nexus. Now what?

• Auditing your customers

• Information sharing with other states

• Special task forces

• Leads

o Former employees

o Competitors

How do states find you?

Nexus Questionnaires

The state already suspects you.

• Questions identify:

o Assets in the state

o Activities in the state

• Response deadline

• Penalties of perjury

Alabama"I declare that the information furnished in response to this questionnaire is to the best of my knowledge and belief, true, correct and complete.”

Michigan“I declare, under penalty of perjury, that the information provided in this questionnaire and any attachments is, to the best of my knowledge, true, correct and complete. If prepared by a person other than officer, partner or owner of the business, this declaration is based on all information you have knowledge.”

Questionnaire Verbiage

Texas"I declare that the information in this document and any attachment is true and correct to the best of my knowledge and belief.”

Michigan“Under penalties of perjury, I declare that the information furnished in this questionnaire is, to the best of my knowledge and belief, true, correct and complete. If prepared by a person other than an officer of this corporation, this declaration is based on all information of which you have knowledge.”

Questionnaire Verbiage

Nexus Questionnaires

• Don’t respond

o Issue preliminary assessment

• Respond

o Could impact your voluntary disclosure

o Contact a consultant

• No statute of limitations

• Seven or more years of tax assessments

• Penalties and interest

o Up to 60%

If the State Finds You

Poll Question

THE PROBLEM NEVER GOES AWAY…

IT ONLY GETS

BIGGER

Case Studies

Service Company

• Small company in a couple of states

• Got national contract

• Used subcontractors to do local work

• Audited and assessed

• Registered in all states

Software Company

• Specialized software

• Traveled to customer sites to install and train

• Nexus questionnaire completed and returned

• States requested prior seven years returns

• $300,000 liability +

Bank Bag Company

• Largest client requested tax be charged

• Register in every state

• Set up the billing systems with correct rates and taxability

• Registered in all states

Sale of Company

• Purchaser conducted due diligence

• Determined they had nexus in states where they were not registered

• Purchaser requested they either discount price of business for amount owed or place funds in trust until resolved.

Poll Question

The Biggest Tragedy in Sales Tax

Tax you could have collected (willingly) from your customer at the time of the transaction ends up coming out of your pocket three years later…

With Penalties and Interest!

THE PROBLEM NEVER GOES AWAY…

IT ONLY GETS

BIGGER

• What states am I registered in now?

• Where else do I have nexus?

• What do I sell in those states?

Define the Problem

• Sales

• Purchases

• Net Income

• Apportionment

Quantify the Problem

• Sales

• Purchases

• Net Income

• Apportionment

Potential Refund?

Fix the Problem• Rank your states by potential

liability

• Possible approaches

o Do nothing

o Register

o Amnesty

o Voluntary disclosure agreement (VDA)

Problems with Registering Now

When did you first start doing business in our state?

• All back taxes returns due

o Back to day one

• Penalty and interest applies

State Amnesty

• Take advantage of state amnesties

• Amnesties are rare

Voluntary Disclosure Agreement• Request an agreement on a

no-name basis

o Limited look back period

o Eliminate or reduce penalty and interest

• Registration is part of the process

Not available in certain circumstances

Voluntary Disclosure Agreement• Deadline

o Critical; extensions possible

• Time frame

o Calculate the tax

o Complete the forms necessary

o Send forms & money in on time

Now What?• Set up your systems to bill and collect the

proper sales tax rates

• File sales tax returns

• Remit tax

Relax.

Sales Tax Returns

• Monthly, quarterly, annually, depending on sales volume

• Local jurisdictions

o e.g. AZ, CO, LA

• Stay current on rate changes

Costly Mistakes

• Ignoring the situation

• Failing to collect tax at the time of sale

• Registering without a VDA in place

• Remitting tax to the wrong jurisdiction

Summary

1.Define the Problem

2.Quantify the Problem

3.Fix the Problem

PeisnerJohnson.com

WebinarsSALTsource newsletterBlogCharts and white papers

•Text

How Can We Help You?

State tax refund reviews

State tax audit defense

Nexus determination and mitigation

Compliance services

•GoTo Webinar control panel

•Follow up email

CPE Credit

Webinar Survey

Avalara – Corporate Snapshot

Market Leader in Automated Sales & Use Tax • 10,000 customers 60,000 registered users• 3+ million calculations per day – 1 billion annually • Manage 5 million exemption certificates & file 500,000 returns• Filing & remitting $14 billion in sales & use tax annually

Enviable Business Position: A Growing Company in a Growing Market – Not a zero sum market• Acquisitions of CertCapture, Tax Matrix & additional taxability content - Additional

Content is a market changing event

• Sales Tax in the News – NPR, Amazon proposals– related to eCommerce, Market Street Fairness Act

• Expanding Markets – gaming, mobile payment platforms

• New Datacenters – To address Growth & Market expansion

Summary & Questionsray.bigley@avalara.com

mike.fleming@peisnerjohnson.comandy.johnson@peisnerjohnson.com

brian.austin@avalara.com