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Use Tax Corporate and State Revenue Dept. Insights & Trends
Dru Beguelin February 11, 2008 — 1,233 views
Companies are placing a greater than ever emphasis on the effective use of resources and in most cases this means a reduction in personnel. One person is doing the job of two, three, or even more employees. Over the years we are seeing more companies gravitating to a “shared services” concept. For those of you who are unfamiliar with this concept what we mean is that companies that would have multiple internal service groups for example in the way of accounting, finance, purchasing, personnel, or legal would consolidate these individual groups. The overall intent of shared services is to create more efficiency through better management and utilization of resources. However, like everything else this centralizing process creates both pluses and minuses.
On the plus side management is able to quantify the fact that a shared services environment has reduced head count, reduced operating expenses, and improved overall efficiency. However, on the negative side, one of the intangibles that often occurs after downsizing or consolidation takes place involves communication amongst organizations. Before you might have had the requisitioner talking about an anticipated purchase with the purchasing agent whom they sat next to or to the accounts payable person who worked down the hall and all of whom worked physically at the same plant. Everyone had that intimate knowledge of the same business and product. However, efficiencies dictate that such arrangements are no longer the case. Decisions quite often must be made based on the best information available. Quite often tax determinations on purchased items are being made by individuals who are hundreds or in some cases thousands of miles away from the individual requesting the purchase. In general tax decisions on purchases are often being made based on limited information.
Like corporate America, the revenue departments of the various states have also been forced to change the way they do business. Not a day goes by that we are not told about the fiscal disaster facing the various states and local jurisdictions. With more and more companies facing net operating losses thereby eliminating income tax as a major source of revenue for the state and local taxing jurisdictions we are finding a greater emphasis being placed on sales and use tax as a major source of funding to make up the shortfall.
Many of the taxing jurisdictions have made an effort to automate as much as possible in order to create efficiencies but in many instances this stops short of the mark. Over the last several years we have seen many taxing jurisdictions modifying their department procedures in an effort to preserve what is left of their shrinking revenue flow. Massachusetts provides a great example of this in their Directive 0217. Prior to this directive the taxpayer could receive credit for sales tax overpayments that were made to vendors but were out of statute as long as the taxpayer under audit had the period open. Under this new directive the taxpayer loses out on any sales tax paid to vendors that is out of statute even if part of the audit. We are also seeing many instances in which claims are being scrutinized more than ever with more claims being denied if the issues they involve are not totally black and white. As always the taxpayer is welcome to pursue administrative relief through the various appeals processes, but once again it places the burden of time and money back on the taxpayer.
In light of these changing times there would seem to be some very basic components that companies must have if they are to manage the use tax they pay on purchases. First, companies must have the necessary internal controls in place that will allow the correct tax determinations to be consistently made correctly. Secondly, it is imperative now more than ever that the correct use tax decision be made up front rather than waiting for determination after the fact.
Dru Beguelin is a Partner at A-SALT Group, LLC where he is a member of a growing practice in the state and local tax arena. A-SALT Group is a dynamic company comprised of professional individuals who bring over 38 years of combined state and local tax experience to bear on your tax needs. His company offers a variety of services focused in the area of Sales and Use Tax, Canadian Sales Tax, and Property Tax.