Presented at Kaseya Connect 2015

Transcription

1 Presented at Kaseya Connect

2 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

3 With You Today Experience More than 24 years of SALT experience Texas Sales and Use Tax Auditor Coopers & Lybrand (Tulsa) Ernst & Young (Memphis and Atlanta) KPMG LLP (Tulsa and Dallas) HoganTaylor LLP (Tulsa) BDO USA, LLP Thomas A. Smith, CPA Partner in Charge, State and Local Tax Page 3

4 Objectives 1. Current law What is Nexus? 2. Market Place Fairness Act 3. The Cloud What and where is it Taxable? 4. The Danger States 5. Are we safe in Florida? 6. How do I become compliant? 7. What to expect when the auditor arrives Page 4

5 Page 5 Sales Tax Overview

6 We should all want to pay what is legally due, not a penny more, not a penny less. Page 6

7 Type of Taxes Sales Tax - Transaction Taxes imposed on transfers of tangible personal property and taxable services Use Tax - Tax imposed on USE of property in State - It is important to understand what constitutes a use Page 7

8 Type of Taxes Intrastate Sales - Transactions completed in the SAME state - If Seller and Purchaser are in same state and the sale is consummated in same state, sales tax generally applies Interstate Sales - Transaction involving multiple states, use tax generally applies Page 8

9 Type of Taxes Jurisdictional Issue Page 9

10 Why didn t that vendor charge tax? Page 10

11 Responsibility for Tax If the Seller is making a taxable sale in the state (has nexus in the state), they must charge tax or obtain the proper documentation to support a tax-free sale. Page 11

12 Nexus Vendor didn t charge tax because vendor may not have nexus. DO NOT ADD TAX TO INVOICE - Vendor likely has no way to remit that tax to the State - Adding tax to invoice will not hold up under audit Page 12

13 Nexus What does nexus encompass? Are the nexus requirements the same for all types of taxes? Page 13

14 Nexus Nexus is defined as the minimum contact an entity must have in order for a state to impose a tax. Nexus requires sufficient contact between the state and the business it wants to tax. Nexus standards vary depending on the type of tax involved, therefore it is possible to have nexus for one tax and not another. Quill Corp. v. N.D., 504 U.S. 298 (1992). Page 14

15 Nexus Mail Order - Physical presence requirement established - Cannot tax those whose only connection to customers in the state is shipping merchandise by Common Carrier or U.S. Mail - Ability to tax changes if a Third Party Common Carrier is not used Nat l Bellas Hess, Inc. v. Il. Dept. of Rev., 386 U.S. 753 (1967). Page 15

16 What Gives You Nexus 1. Solicitation in a state 2. Agent 3. Delivery 4. Property in a state Page 16

17 Box in the Basement Page 17

18 Nexus How do they find you? Audits of your customers Nexus Questionnaire Nexus Units - Sole purpose is to find non-filers - Often send questionnaire Page 18

19 Page 19 General Taxability

20 Imposition of Tax Tangible Personal Property ( TPP ) - Property, other than real property, that can be - Held - Smelled - Touched - Seen - Tasted - Otherwise perceptible to the human senses Subject to tax unless specifically exempted or excluded by statute Page 20

21 Imposition of Tax Services - Most states specifically enumerate taxable services - If service is not enumerated, it is not taxable - Generally, service providers must pay tax when purchasing property to be consumed while performing nontaxable service - Several states have provision for providers to purchase services for resale Page 21

22 Computer Hardware, Software and Service Agreements Hardware taxable as TPP Canned vs. Custom Software Tangible Delivery vs. Electronic Download Mandatory vs. Optional Agreements Page 22

23 Bundled Transactions Retail sale of two or more products where products are otherwise distinct and identifiable, and the products are sold for one non-itemized price Subject to sales tax without any deduction for the value of the nontaxable products or service Page 23

24 Page 24 Marketplace Fairness Act

25 Not a New Tax Passed the U.S. Senate in May 2013 and is currently under consideration in the House of Representatives Requires all remote sellers (online or catalog retailers) doing a minimum of $1 million of revenue in the U.S. in the preceding calendar year to collect and remit taxes for every state where they have customers Requires states to simplify their sales tax laws by either joining the Streamlined Sales and Use Tax Agreement (SSUTA) or by satisfying five simplification mandates listed in the legislation Page 25

26 Page 26 The Cloud

27 Cloud Computing A model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. Nat l Institute of Standards and Tech. of the U.S. Dept. of Commerce The ability for a corporation or individual to access data storage space, computing platforms, databases, or software from a cloud computing provider in exchange for a usage fee. Page 27

28 Three Service Models 1. Software as a Service (SaaS) The customer can access the provider s applications located on the cloud. 2. Platform as a Service (PaaS) The customers launch their own applications on the cloud using programming languages and other tools supplied by the cloud computing provider. 3. Infrastructure as a Service (IaaS) The cloud computing provider provides the customer with storage space and processing power on the network to run software, applications, and operating systems. Page 28

29 How We Got Here In today s economy, companies are facing increased pressure to cut costs, driving many companies to consider cloud computing infrastructures. This same economy is driving state revenue departments to look for new ways to expand their tax bases without technically enacting new taxes. As a result, many states are looking closely at the developing cloud computing industry as a new source of revenue. Page 29

30 The Danger States Although the approaches vary, the current trend among the states is to tax Cloud Computing/Software as a Service. Taxable as sale of Prewritten or Canned Computer Software - Arizona, Indiana, Massachusetts, Michigan, New York, Pennsylvania, Utah, Vermont Taxable as the sale of a Taxable Service - Computer Service Connecticut - Data Processing Service Texas - Telecommunications Service South Carolina Expressly enumerated as Taxable - Washington Page 30

31 Florida Software as a Service Monthly fees allowing customers access to pre-written software do not constitute taxable transactions, provided the software is accessed electronically. Fla. Tech. Assist. Advis. No. 05A-026, (Jun. 2005) - However, files transferred via hard drive, CD, DVD, etc. are subject to sales and use tax. Beware of bundling! Infrastructure as a Service Charges for accessing a computer through a terminal device in order to enter data, compile programs, make computations, have computational results printed out, and/or store data for future use constitute rental of the computer and are taxable if the computer is physically located in Florida. Fla. Admin. Code 12A-1.032(3) Page 31

32 Case Study Initial discussions with client, who believes his/her company offers only a single product (likely nontaxable anyway because it s all on the cloud ) and a couple services. Upon a careful review of a sample of client s invoices and contracts, we identify and confirm over a dozen different product/service offerings by the client. We perform state-by-state research on the taxability of each of these buckets to produce a final product taxability matrix for the client. Client uses this matrix to maximize its sales and use tax compliance in all applicable taxing jurisdictions. Page 32

33 Page 33 Sales Tax Compliance

34 Burden of Proof Retailers - Fiduciary duty to collect and remit tax - Must register with state, timely collect, self-assess and remit tax - Proper documentation - Invoices, purchase orders, contracts, bills of lading, credit and bad debt write-offs, past returns, exemption and resale certificates Page 34

35 Sales Tax Planning Single State v. Multistate - Do not be reactive, BE PROACTIVE - Identify key nexus triggers - Employee living in a state - Sales person entering a state - Sales level or volume within a state - Different types of taxes have different nexus requirements - Sales Tax v. Income Tax Page 35

36 Sales Tax Planning Risk/Exposure - Quantify amount of exposure present by failure to take action - How much risk are you willing to take? - What is your threshold of pain? - Once trigger occurs, next steps: - Certificate of Authority - Register for applicable taxes Page 36

37 Requirements Registration - Must do if you have nexus Permits - Every state where you have nexus - Sales and Use Permits Reporting Requirements - Monthly, quarterly, bi-annually, annually - Often depends on amount of tax remitted to state Page 37

38 Page 38 Liability for Deficiency

39 Audits and Assessments State and Local Audits - Audit Period - Statute of Limitations - Generally, 3-4 years - Waiver/Extension What is the Audit Period if the Company never registered for Sales and Use Tax Permits? Page 39

40 Liability Issues Common Issues Resulting from Audits - Successor Liability - Any person who directly or indirectly purchases, acquires, or succeeds to the business or the stock of goods of any person quitting, selling, or otherwise disposing of a business or stock of goods. - Officer and Director Liability - Any person required to collect sales tax as a trustee for the state can be held personally liable for the sales tax due. In the case of a corporation, each principal officer will be held personally liable for the sales tax due. Page 40

41 Voluntary Disclosure Agreements Contract between Taxpayer and State - Want to limit their look back Taxpayer makes Voluntary Disclosure through Third Party State may waive penalty and/or interest Usually initiated when deficiency is discovered Cannot be made if Taxpayer is under audit Page 41

42 Contact Information Thomas A. Smith, Partner BDO USA, LLP (918) Page 42

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