Ohio Tax. Workshop I. Basic: Ohio Sales & Use Tax: Best Practices in Compliance & Successful Audit Strategies

Transcription

1 24th Annual Tuesday & Wednesday, January 27 28, 2015 Hya Regency Columbus, Columbus, Ohio Ohio Tax Workshop I Basic: Ohio Sales & Use Tax: Best Practices in Compliance & Successful Audit Strategies Tuesday, January 27, :00 p.m. to 4:00 p.m.

2 Biographical Information Paul Tomcufcik, Director, Sales/Use Tax Division, DuCharme McMillen & Associates Country Club Blvd. Ste. 220 North Olmstead, OH Fax As Director of the Cleveland sales/use tax practice, Paul works closely with clients and DMA s sales/use tax staff to develop and implement tax planning strategies that result in significant tax savings. He also works with state tax authorities to ensure DMA s clients receive equitable treatment. In addition, Paul plans, organizes and performs sales/use tax diagnostic and transaction analyses for major corporations. He analyzes clients transaction tax data, reviews sales/use tax audit assessments and files the necessary appeals. He also negotiates with auditors and hearing officers regarding audit assessments and refunds, performs sales/use tax managed audits on behalf of clients, establishes managed compliance agreements for clients, and provides sales/use tax training seminars. Experience Paul has over 22 years of sales/use tax experience. Before joining DMA, he was a Tax Manager for Deloitte & Touche LLP. While there, he managed the sales/use tax consulting activities of the Cleveland office. He completed sales/use tax overpayment reviews and Ohio managed audits, performed sales/use tax audits and attended hearings. In addition to his public accounting experience, Paul has four years of experience with the Ohio Department of Taxation, Sales/Use Tax Division, where he performed audits of mid-size to large corporations. Education/Credentials Paul holds a Bachelor of Business Administration degree in Accounting from Kent State University and continues to expand his knowledge by attending seminars that examine the latest changes in state and local taxation. He is a member of the Institute for Professionals in Taxation. Kurt J. Davies, Director, Audits and State & Local Taxes, The Sherwin-Williams Company 101 Prospect Avenue, NW, Cleveland, OH kjdavies@sherwin.com Fax Kurt Davies is currently the Director of Audits and State & Local Taxes for The Sherwin-Williams Company, specializing in all Audit areas IRS, State and Local; Sales/Use, Income and Property. He also oversees compliance areas in Sales/Use, Real & Personal Property, Payroll Taxes, Unclaimed Property, Ohio CAT, Business Licenses, 1099 s and W9/W8. Kurt has worked at Sherwin-Williams since July He spent his first 5 years in the Accounting Department working in Real Estate, Fixed Assets and General Accounting. He then moved into the Tax Department and has held various tax jobs over the past 19+ years. Kurt received his Bachelor of Business Administration degree in Accounting from Cleveland State University. He passed the Ohio CPA exam and received his Master s Degree in Taxation from The University of Akron. He is a member of the AICPA and Tax Executives Institute. J. Eric Buntin, Nat l Director Compliance, DuCharme, McMillen & Associates, Inc Allison Pointe Blvd., Suite 300, Indianapolis, IN ebuntin@dmainc.com (317) , ext Eric leads one of DMA s largest and fastest growing practices where he oversees a staff of dedicated sales/use tax compliance professionals responsible for the processing and payment of client tax returns for Fortune 1000 clients. He provides strategic tax planning for complex business transactions and conducts extensive research for unique client tax issues. Eric has more than 22 years of business tax experience. His diverse tax background also includes the management of sales/use, income and franchise, property, gross receipts, and other business-related taxes. Prior to joining DMA in 1996, he worked at one of the nation s largest wholesale food distributors where his responsibilities included overseeing the filing and compliance of state and local taxes, as well as coordinating all state and local tax audits nationwide. Eric also worked in manufacturing, where his duties included the preparation of federal, state and local tax returns in addition to providing audit and tax compliance assistance.

3 Ohio Sales & Use Tax: Best Practices in Compliance & Successful Audit Defense 1

4 Presented by Kurt J. Davies, CPA, MT Director, Audit and State and Local Taxes The Sherwin-Williams Company Paul Tomcufcik Director, Sales/Use Taxes DMA Eric Buntin National Director, Compliance DMA 2

5 COMPLIANCE BEST PRACTICES 3

6 COMPLIANCE BEST PRACTICES Excellent Compliance Practices = Great Audit Results Incorrect Collection Rates or Exempting Sales That Don t Qualify Affects Your Company s Bottom Line Exemption Certificate Database Proper Compliance Is Harder Than You Think! 4

7 In house Compliance v. Outsourced Compliance * Clean Data Files * Don t Manipulate the files Take Directly From Source Files No Manual Data Entry More People = More Issues/Problems Review Your Technology Review Processes Regularly COMPLIANCE BEST PRACTICES Eric Buntin Compliance/Outsourcing/Automation 5

8 Ohio Sales/Use Tax Filing Outsourcing Considerations Best Practices Sales/Use Technology 6

9 STATE TAX RATES State State Rate National Rank Avg. Local Rate Combined Rate National Rank Tennessee 7.00% % 9.45% 1 Arkansas 6.50% % 9.19% 2 Louisiana 4.00% % 8.89% 3 Washington 6.50% % 8.88% 4 Oklahoma 4.50% % 8.72% 5 Ohio 5.75% % 7.11% 19 7

10 STATE RATES 8

11 OHIO SALES/USE RETURN NUANCES Separate Returns based on tax type UST 1: Ohio Universal Sales Tax Return UUT 1: Ohio Universal Use Tax Return Due Date 23 rd State Rate = 5.75% Collection Discount allowed =.0075 Sales tax only CAT Commercial Activity Tax 9

12 OHIO FILING METHODS All OH vendors required to file electronically regardless of sales volume using either of following methods: TeleFile UST only Single county/location only Ohio Business Gateway Input data directly Express Data Entry o Upload county sales/use tax data o Input remainder of return Full upload of all data (EDI) 10

13 OHIO FILING FREQUENCY REQUIREMENTS Monthly > $5,000 in quarterly liability Quarterly < $5,000 in quarterly liability Semi annual < $1,200 per six month period 11

14 OHIO TAX PAYMENT OPTIONS 1. ACH Debit 2. ACH Credit Must be registered with Treasurer of State 3. Paper Check Tax liability thresholds apply 4. Credit card EFT Requirement Annual tax liability of $75,000 or more Prepayment required as well 12

15 MONTHLY SALES/USE TAX FILING PROCESS 1. Run Source Data Reports Data manipulation usually required Errors/Adjustments Use tax accruals 2. Return Preparation 3. Return Review 4. Tax Payment Processing Treasury/AP verification 5. File Returns 6. Reporting G/L reconciliation

16 RUN SOURCE DATA REPORTS Still require in house time/resources I/T Tax Group Data manipulation requirements How much time each month? Are changes/manipulation material? 3 rd party access Timing Provider requirements 14

17 RETURN PREPARATION/REVIEW Review provider prepared returns before filing? Timing Incorporating adjustments Internal Resources Time Cost Consistency Does provider REQUIRE sign off prior to filing? Internal cost/time estimate needed 15

18 PAYMENT PROCESSING Not an option from all providers If kept in house Timing Filing responsibilities Alignment with internal Treasury policies Lump sum vs. individual payments Elimination of separate check requests Signing thresholds EFT payment policy of provider ACH Cr ACH Dr Provider funding requirements Timing Number of monthly funding requests 16

19 FILING RETURNS Online filing capabilities Web file EDI Provider filing (timing) policies Immediate upon completion X number of days prior to due date Filing confirmation(s) Kept for each state/filing jurisdiction? 17

20 REPORTING Standard provider reporting package Does it meet my monthly needs? Does provider offer custom reporting options Development time Cost Online availability Returns Tax payments Reports 18

21 OUTSOURCING/CO SOURCING OBJECTIVES Realignment of internal resources Access to sales/use tax specialists Tax expertise Shifting of Risk Increase in administrative control Provider Tax and Metric Reports Tax liability summaries 19

22 SALES/USE COMPLIANCE BEST PRACTICES Integrated AR and AP systems (single ERP system) Provides for a single tax determination point Minimize the number of monthly tax data reports Streamlined return preparation Monthly, routine updates Tax Rates Product Codes Integrated with monthly system updates from IT Tax Department Control Documented return preparation procedures 20

23 TECHNOLOGY/AUTOMATION OPTIONS Tax Engine (Effective & Efficient) Taxware Thomson Reuters OneSource (previously Sabrix) Vertex Return Preparation Software (Efficient) OneSource/Insource TaxSolver CCH SaaS (Software as a Service) (Effective) 3rd party tax rating Outsourcing (Efficient) 21

24 OUTSOURCE PROVIDER QUESTIONS 1) What does the service include? Tax payment processing 2) Is any part of the process outsourced? Off shoring Payment processing 3) Staffing is there a dedicated account executive? 800 customer service number Name/ address/phone number 4) Technology/Process what return preparation software is used? Scalability Source data compatibility 22

25 OUTSOURCE PROVIDER QUESTIONS 5) What does the on boarding process consist of? How long will it take How much of your time will be required 6) What type of security is provided with regard to tax data, electronic transmission and funds? EFT tax payments 7) How much or how long will tax data be stored? 8) How do you handle tax data discrepancies/errors? Error report Are we notified? 23

26 OUTSOURCE PROVIDER QUESTIONS 9) Do you manage communication with taxing authorities? Tax Notice Management Multi state tax expertise very important 10) Control how can we monitor your work? Online access web portal Return review Kurt Davies Successful Audit Defense 24

27 AUDIT DEFENSE BEST PRACTICES Audit Defense What s Important? Timeliness Communicating with the Auditor Involvement Be Proactive Data Complete and Accurate Understanding Audit Plan 25

28 PRE AUDIT PHASE Selection Process Information from other tax collectors State Internal Revenue Service Targeted industry Substantial taxpayer Prior audit Nexus questionnaire 26

29 PRE AUDIT PHASE Stay Current Ohio Tax Conference Tax Executives Institute ROCI Meetings (Retailers of Common Interest) Tax Club Other Professional Networking Groups Be Proactive Refund Opportunities for your Company? Materiality of New Developments Amended Return? How Does This Impact Other States Audits? 27

30 PRE AUDIT PHASE Statute of Limitations (SOL) Both assessment and refund Pending federal adjustments? Waivers? Protect SOL for refunds Scope Of The Audit Sales Tax Audit Use Tax Audit Both? 28

31 PRE AUDIT PHASE Sampling Techniques Used By Auditor Eliminate Tax Paid Transactions Eliminate Accounts that have tax paid already Schedule Credits in the audit? File A Refund Claim? Prior Audit Findings Can You Rely On Them? Issues That You Thought Were Resolved May Appear Again 29

32 PRE AUDIT PHASE Preparing For The Audit Review State Audit Guidelines Brief Relevant Employees Examine Current Tax Related Files Review Tax Law Changes Is Amended Return Warranted Review Sales/Use Tax Reserve 30

33 PRE AUDIT PHASE Assemble Relevant Information Chart Of Accounts Returns Data Electronic Format Subsidiaries If Sales Tax Audit Exemption Certificates Strategize Plan to Obtain Invoices and Other Records 31

34 AUDIT: INITIAL CONTACT Understand Scope Of, and Period Under, Audit If close to expiration of Statute of Limitations, request first year be dropped If unsuccessful, obtain concessions for expedited audit or waiver Consider Statute of Limitations for refunds and/or Revenue Agent Report adjustments Multistate Tax Commission 32 32

35 AUDIT: INITIAL CONTACT Initial Meeting Discussion of issues, concerns and Resolutions Obtain audit plan How was taxpayer selected? Records auditor will want Attempt to ascertain the level of auditor discretion, by issue Establish agreement Timetable for completion Length/timing of field work, including drop dead date Multistate Tax Commission DuCharme, McMillen, and, Inc 33 33

36 AUDIT: INITIAL CONTACT Initial Meeting (Continued) Establish agreement Timing of milestones to be met by both parties Rules on [NOT] extending Statute of Limitations Manage expectations Control access to personnel and records Procedures for requesting information Procedures for requesting interviews Be available for questions Avoid fishing expeditions and training audits Establish one point of contact for auditor Be courteous Multistate Tax Commission 34 34

37 AUDIT: HOUSEKEEPING MATTERS Establish Work Area. Considerations in selecting area Preserving confidentiality of taxpayer documents Establish Copy Procedure Taxpayer makes requested copies Keep duplicates Manage Flow of Information Give only what is requested Give extra (i.e., affirmative facts and analyses) only when clearly favorable and strategy has been considered. Multistate Tax Commission 35 35

38 AUDIT: HOUSEKEEPING MATTERS Manage Flow of Information (Continued) Thoroughly prepare operations personnel and third parties for interviews and depositions Track the Information Flow Get all requests in writing Keep record of all responses and copies of all documents provided Keep detailed notes of meetings Protect privileged documents Note that one disclosure generally waives privilege for all time Multistate Tax Commission 36 36

39 AUDIT: HOUSEKEEPING MATTERS Limited Cooperation as a Tactic Will the State go away or develop the information elsewhere? Will the State take an unreasonable position that will produce substantial costs to unravel? Audit Reputation Risk Consequence of astronomical protective assessment Prevent Access to Unauthorized Sources Written agreements on limits and methods of gathering information Multistate Tax Commission 37 37

40 AUDIT: HOUSEKEEPING MATTERS Prevent Access to Unauthorized Sources (Continued) Badges for auditors that are different than standard employee badges Examine library or other common area for unauthorized documents, such as transaction books Limited IT access Multistate Tax Commission 38 38

41 RULES OF THUMB ON MANAGING THE AUDIT Communicate and Avoid Surprises Stay on Track Question Departures from Plan Avoid Premature Discussion of Technical Issues Understand the Audit Chain of Command Manage Internal Expectations Multistate Tax Commission 39 39

42 RULES OF THUMB ON RESOLVING DISAGREEMENTS Do We Have a Disagreement or a Misunderstanding? Alternative Sources of Information or Proof Request Issue Determinations as They Occur Request Involvement of Supervisor Only as Needed Negotiation at Audit? Offsetting adjustments/issues Offsetting years Multistate Tax Commission 40 40

43 RULES OF THUMB ON MAJOR ISSUES As soon as possible after potential controversy identified, Company should create a record of material facts: Identify and interview key employees and third parties Identify, organize and preserve relevant documents Mastering factual record essential to posturing case, evaluating settlement opportunities, minimizing document costs, and WINNING case Finding Fact Witnesses Critical to pretrial education of team All fact finders prefer knowledgeable fact witnesses to statements by Rep. Multistate Tax Commission 41 41

44 AUDIT: CLOSING THE AUDIT Discuss Any Recommended Adjustments Authorities Conclusions reached Possibility of settlement/discretion to resolve at audit level Agreement with Audit Schedules Review for accuracy Ensure full understanding of all audit adjustments Multistate Tax Commission 42 42

45 OTHER STATES California New Exemption Texas R & D Exemption Minnesota Capital Equipment Exemption 43

46 CONTACT INFORMATION Kurt J. Davies, CPA, MT Director, Audits and State & Local Taxes (216) Paul Tomcufick Director, Sales/Use Taxes (800) Eric Buntin National Director, Compliance Services Indianapolis, IN (800) , ext