As a CPA firm that specializes in serving the middle market, most of our clients tend to take on the filing responsibility for indirect taxes themselves. Reasons for this might include cost savings, familiarity to the business and sometimes it’s just because it has always been done that way. As a state and local tax (SALT) professional, I oftentimes get called upon after a notice is received (whether it be an audit or just a general tax assessment) and am charged with “clean up” duty. Although most matters can be resolved through correspondence with the state or local taxing authority, it generally requires a good amount of time and effort for both myself and the corresponding fiduciary with the company.
Covid-19 has brought about new challenges for state and local governments and has exacerbated their already depleted revenue streams. As expected, there has been an uptick in audit activity, particularly in the indirect tax space. Now is the time for companies to be proactive, rather than reactive, on their SALT compliance so no surprises come about from a potential audit.
Sales and use tax, when done properly, is meant to be revenue-neutral to a company (taxes get properly charged, collected, and remitted to the proper state or local authority). However, when done improperly, this can result in a tangible loss to the company, as depending upon your industry, your ability to go back to your customers to collect the tax can be difficult, if not impossible. With the Wayfair decision (June 2018), establishing economic nexus thresholds in virtually all states, this compliance becomes paramount to keeping owners protected against the litany of state audits that could cripple a growing business.
Another often overlooked indirect tax is the Ohio commercial activity tax (CAT). At first glance, it appears relatively easy to file as it only requires companies to report their Ohio taxable receipts for the quarter/year. Oftentimes, I find that companies either are not registered properly (group filing/separate company filing) or don’t understand the sourcing complexities to their sales revenues.
A proactive company who discovers the risks/exposures related to their indirect and income tax matters before being contacted by the taxing authority is afforded a great number of options to mitigate their exposure. Most, if not all, states offer some sort of voluntary disclosure or amnesty program for tax deficiencies that are unknown to the taxing jurisdiction.
Engaging Apple Growth Partners to complete a SALT checkup, which typically takes a half day investment, can provide a risk analysis and path to compliance for business owners. It will also provide business owners a peace of mind as you will have a good sense of any potential exposures, or in some cases, refunds that are available along with action items to get back into compliance.
If you have questions about your company’s indirect taxes or would like to discuss having a SALT checkup performed, please contact Mark Rossetti at (330) 315-7854 or email at email@example.com.