Whether you are contemplating a merger or acquisition, selling all or part of your business, or simply reviewing a business contract, there are tax implications to any proposed deal. While many due diligence reviews focus on federal and state income tax planning, transaction tax risks and exposures often gets overlooked. Process-related inefficiencies, missing/inaccurate documentation, nexus issues, and erroneous interpretations of sales tax statutes can present unforeseen tax liabilities and hamper efforts to grow or restructure your business.
If you’re looking to perform a merger/acquisition, Michael James’ tax professionals can assist in your due diligence efforts by examining and identifying potential risk areas in the target company’s sales tax processes and records. We will look for any liability that may result from the target company’s sales-tax deficiencies. Your company can then take appropriate action by setting up a reserve account and/or negotiating a purchase price adjustment reflecting the increased risk. If you are selling your company, having the sales tax process reviewed by Michael James will allow the opportunity to correct and optimize any deficiencies. Mitigating your risks makes your company more attractive to buyers, allowing you to command a higher sales price for your company.
Exemption Certificate Review
An improperly completed exemption certificate is an easy way to attract an assessment from an auditor. Auditors may have been more lenient in the past in accepting certificates which did not comply with the letter of the law. However, in these current economic times, auditors are less likely to show any leniency on such issues.
Michael James will analyze every certificate to verify compliance with a particular state’s requirements. For example, for each state we review, we will provide the tax code/tax statute for the information we relied upon to make our determination
Does your company do business in more than one jurisdiction?
Do you plan on expanding your small business into a multi-jurisdiction operation?
Sales and use tax laws and regulations governing a taxable presence (or nexus) can vary by state and locality. Many companies, unaware of their overall sales and use tax exposure, receive surprise assessments from state and local taxing authorities for failing to register and file sales tax returns. Furthermore, failure to file gives revenue authorities the ability to assess against any previous years it deems the company had nexus within its jurisdiction, regardless of any statute of limitations. The total amount owed via assessments, penalties, and interest can be staggering to a company’s bottom line.
A nexus review, performed periodically, can ensure compliance, prevent costly assessments, and put your company at a competitive advantage. Michael James’ tax professionals can help identify your company’s sales and use tax exposure by thoroughly researching state and local regulations to determine where registering, accruing, and filing of a sales and use tax return is necessary. If you’re currently facing an assessment due to a nexus issue, we can leverage established relationships with state agencies to minimize, and possibly eliminate, the assessment. Finally, Michael James can assist in identifying potential refund opportunities where tax was erroneously paid to a state/locality without nexus.
A Managed Compliance Agreement is a formal written agreement between a taxpayer and a Department of Revenue which provides a method for calculating and remitting use tax on their purchases. Instead of analyzing each individual transaction, a taxpayer is able to apply an effective tax rate to aggregate purchases. The advantage is clear: both the taxpayer and the State save time and resources by computing this tax rate once and applying it over years of data. (The effective tax rate is often updated periodically or when a significant event occurs, such as a change in business practices or state tax rate.)
MJ Tax will analyze your unique business practices and will use its years of professional use tax experience to determine a fair effective tax rate to apply to your purchases. We are also capable of reviewing past managed compliance agreements for errors which may be costing you each time you make a purchase.
A procurement card (also known as a P-card or corporate card) can be either a corporate credit card or a company debit card. Used to circumvent the lengthy and expensive process of issuing purchase orders, matching receiving documents to supplier invoices, and making check payments, P-cards streamline the process of making payments to suppliers.
If your organization utilizes a procurement card for purchasing materials/services, Michael James can assist you by ensuring the proper procedures for sales tax are being followed, such as making certain sales tax is not being charged on purchases, if applicable, and reviewing appropriate sales tax exemption certificate documents. In the event sales tax should not have been paid, but was done so in error, we can help in making recoveries. Michael James will also work with your suppliers to overcome P-card supplier enablement, thereby ensuring a smooth conversion to the Accounts Payable purchasing card payment process.
Reverse Sales Tax Audits
An often overlooked aspect of indirect tax compliance is the risk of overpayments. Compliance systems and processes should be designed and implemented to ensure the proper collection and remittance of sales and use tax. However, organizational changes such as business expansion, downsizing, and employee turnover can expose vulnerabilities and create unique overpayment situations. Such inefficiencies, if not discovered and remedied, can erode profit margins for your business.
A reverse tax audit, performed by tax professionals at Michael James, can ensure that your company pays only what it rightfully owes. Our team will thoroughly research potential exemptions applicable to your business. We will analyze your company’s purchasing, invoicing, and compliance processes to find and document deficiencies which could result in sales/use tax overpayments.
In addition, Michael James will work with your organization to obtain refunds of prior overpayments you may have made.
Ruling requests are written statements issued by a taxing authority at the request of a company seeking guidance on a specific tax-related issue. In a typical ruling request, a business submits the details of their proposed transaction to the appropriate taxing jurisdiction, which in turn reviews the documents and determines how its laws apply to the taxpayer’s specific facts. When finished, the taxing authority issues a letter ruling which offers clarity and certainty as to how it will treat the proposed transaction. In a private letter ruling, the result only binds the taxing authority and requesting taxpayer. Conversely, a public letter ruling (revenue ruling) becomes precedent for all taxpayers within the jurisdiction. Whether private or public, this information, when obtained in advance, can help businesses plan for, design, and implement desired changes without worrying about significant tax consequences.
If you are contemplating a proposed transaction, Michael James can help you draft, review, and submit a ruling request which highlights your position and ensures your interests are protected. Furthermore, if you’ve already submitted a request which resulted in an unfavorable ruling, Michael James will assist you in revising that request in the event specific facts change that could warrant a different outcome.
Audit settlements can be an effective tool to achieve a quick resolution to open audit files. Both taxing authorities and taxpayers have welcomed the settlement approach as a logical solution in concluding an audit. During settlement discussions, concessions are usually made by both parties in order to arrive at a result that is both fair and acceptable to everyone involved.
Leveraging our existing relationships with state taxing jurisdictions, Michael James will review your prior audit results and assist you in determining the best course of action in settlement negotiations, ensuring your sales and use tax liability is minimized wherever possible. When used appropriately, audit settlements can save your organization time and resources.
Michael James provides value to its clients by implementing effective tax compliance processes. Our professionals also possess a vast breadth and depth of sales and use tax knowledge which can assist your organization in formulating optimal tax planning scenarios. Whether through transactional restructuring or business reorganization, Michael James ensures your tax operations are aligned with the overall strategic goals of your organization.
Keeping up with the sales and use tax laws of one state can be difficult enough – but what if you do business across state lines? Does your company have the resources to determine how to apply tax law in each state to your business practices?
Michael James is prepared for this undertaking. Our professionals remain at the forefront of current trends and emerging issues, and will blend this knowledge with your unique business situation in order to make taxability decisions. Not only will Michael James present a taxability matrix in an easy-to-follow format, we will reference the appropriate tax code for each decision and advise the effects of new sales and use tax laws as they relate to your industry.
Voluntary Disclosure Agreements
As soon as you have established nexus in a particular state, you are required to register with the state before beginning to collect sales tax from customers (as well as accruing and remitting any applicable use tax.) After review, if you’ve determined that your organization established nexus at some point in the past, simply registering with the state will expose your prior liabilities as far back as necessary. Thus, your company could be subject to years of unpaid tax, interest, and substantial penalties on all unfiled tax return periods.
Voluntary Disclosure Agreements (VDA’s) may be particularly beneficial if your organization has a considerable amount of periods open without reporting tax. A VDA is a proactive approach to reporting prior period tax obligations.
Michael James can negotiate a VDA on your behalf, typically anonymously, in order to limit your prior period exposure and close older periods. A state may waive all or part of penalties and interest to organizations which make an accurate and timely filing within a given time period established by the jurisdiction. In these instances, Michael James will assist you in devising a plan and, if applicable, negotiating an appropriate tax filing of any sales and use tax liability in order to take advantage of such reduced penalties and interest.
To discuss your specific situation with an experienced Michael James professional, please contact us so we can tailor a strategy that fits your organizational needs and objectives.
Is your production process exempt from use tax?
Did you know that your company can save a substantial amount in use tax on its energy bills when assigning all or part of it towards an exempt production process?
Michael James’ personnel are knowledgeable and experienced in conducting and identifying utility consumption data which can assist your organization with utility refund applications and claims for exemption.
Our tax professionals will also review your compliance procedures as they relate to your utilities and ensure all claims for exemptions to vendors are valid and up-to-date.
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