Peisner Johnson 6-27-2013

Report
Sales Tax is Changing.
What’s happening & why?
Client Service Opportunities
Andy Johnson CPA- Partner Peisner & Johnson
Mike Fleming – Peisner Johnson
Ray Bigley -VP Bus Developemnet
June 27, 2013
NOT FOR DISTRIBUTION
CONFIDENTIAL
© Copyright Avalara, 2013
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Today’s Discussion
Market Forces & Evolving Markets
Market Place Fairness Act (67 to 29)
Peisner Johnson - Client Services
Market Forces
$107,000,000,000
$55,000,000,000
Market Forces: State Budget Gap
State Budget Gaps
Market Forces: State Budget Gap
$23,800,000,000
$12,500,000,000
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)
Omni channel Markets: Mobile
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Omni channel Markets: Gaming
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Omni channel Markets: Gaming
Next up after Marketplace Fairness ?
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
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Revenue Shortfalls Combined with Changes in Commerce
Create
Market Inflection Points…
Marketplace Fairness Act
(67 to 29)
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
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AUTOMATED RETURNS
It’s not a laughing matter
Peisner Johnson & Company, LLP
Andrew Johnson & Michael Fleming
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Michael J. Fleming
@MikeAtPJCo
I Have Nexus.
Now What?
Agenda
• Webinar will last one hour
• One hour CPE credit available
• Ask a question any time
Who Are We?
•
•
•
•
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Founded in 1992
Registered CPA firm
State & local taxes only
Former state auditors
& other professionals
Consult in all states &
Canada
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
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Scripto
Georgia company used independent sales reps in
Florida, and Supreme Court held that it had significant
connection (1960)
National Bellas Hess
1967 Supreme Court Case. National Bellas Hess, Inc.
v. Department of Revenue of Ill., 87 S.Ct. 1389 (1967)
Court Cases
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Tyler Pipe
Texas company with no property, offices, or employees
in Washington. Supreme Court agreed that activities
created nexus and assessment stood (1987)
Quill Corporation
For 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
Obvious
• Buildings, property
• Employees
Less Obvious
• Independent sales reps
• Sub-contractors, agents
• Installation, training,
maintenance
• Rented or leased property
Nexus-Creating Activities
I have nexus. Now what?
Generally:
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Register
Collect the sales tax/pay the
income tax
o Collect a proper resale
certificate in lieu of tax
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File regular tax returns
How do states find you?
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Auditing your customers
Information sharing with other
states
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Special task forces
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Leads
o Former employees
o Competitors
The state already suspects you.
•
Questions identify:
o Assets in the state
o Activities in the state
•
Response deadline
•
Penalties of perjury
Nexus Questionnaires
Questionnaire Verbiage
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.”
•
Don’t respond
o Issue preliminary
assessment
•
Respond
o Could impact your
voluntary disclosure
o Contact a consultant
Nexus Questionnaires
If the State Finds You
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No statute of limitations
Seven or more years of tax
assessments
Penalties and interest
o Up to 60%
Poll Question
THE PROBLEM NEVER
GOES AWAY…
IT ONLY GETS
BIGGER
Case Studies
• Small company in a couple of
states
• Got national contract
• Used subcontractors to do
local work
• Audited and assessed
• Registered in all states
Service Company
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Specialized software
Traveled to customer sites to
install and train
Nexus questionnaire
completed and returned
States requested prior seven
years returns
$300,000 liability +
Software Company
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Largest client requested tax
be charged
Register in every state
Set up the billing systems with
correct rates and taxability
Registered in all states
Bank Bag Company
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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.
Sale of Company
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
Define the Problem
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What states am I registered in
now?
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Where else do I have nexus?
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What do I sell in those states?
Quantify the Problem
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Sales
Purchases
Net Income
Apportionment
Potential Refund?
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Sales
Purchases
Net Income
Apportionment
Fix the Problem
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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?
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All back taxes returns due
o Back to day one
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Penalty and interest applies
State Amnesty
•
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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
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Monthly, quarterly, annually,
depending on sales volume
Local jurisdictions
o e.g. AZ, CO, LA
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Stay current on rate changes
Costly Mistakes
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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
1.Quantify the Problem
PeisnerJohnson.com
Webinars
SALTsource
newsletter
Blog
Charts and white papers
How Can We Help You?
State tax refund reviews
State tax audit defense
•
Text
Nexus determination and mitigation
Compliance services
CPE Credit
• GoTo Webinar control panel
• Follow up email
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 & Questions
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