Sales & Use Tax Best Practices, Procedures, Challenges, Tips and Refund Opportunities

Sales & Use Tax Best Practices, Procedures, Challenges, Tips and Refund Opportunities 1:30 p.m. to 3:15 p.m. Thursday, August 7, 2014

Biographical Information Edward J. ("Ted") Bernert, Partner, Baker & Hostetler LLP 65 E. State Street, Suite 2100, Columbus, Ohio 43215 ebernert@bakerlaw.com 614.462.2687 Fax 614.228.1541 Edward J. ( Ted ) Bernert concentrates his practice in the area of state and local taxes with a particular emphasis on the major Ohio taxes affecting businesses and business owners sales and use, financial institution, personal income, commercial activity and real property taxes. He represents national companies concerning Ohio tax matters related to compliance, planning and tax legislation. Mr. Bernert regularly deals with various tax department officials upon audit or administrative appeals. He has an active tax litigation practice before the Ohio Board of Tax Appeals and upon appeal to the courts, including the Supreme Court of Ohio. Mr. Bernert is a member of the Executive Committee of the American Bar Association s State and Local Tax Committee and is a past chair of the Ohio State Bar Association Taxation Committee and the State and Local Tax Section of the Columbus Bar Association. Mr. Bernert was appointed by the Governor to the Ohio Business Gateway Steering Committee to address the continued development of an electronic link for filing taxes and other matters affecting business. He also serves as a member of The Ohio Chamber of Commerce Taxation Committee. Mr. Bernert is an adjunct professor of state and local taxes at the Capital University Law and Graduate Center and served as Chief Editor of Ohio Tax Review, formerly published by the Center. He currently serves as the co-editor of the Guidebook to Ohio Taxes, published by Commerce Clearing House. He has repeatedly been named an Ohio Super Lawyer in the area of Taxation and holds an AV rating by Martindale-Hubbell. Allan R. Thompson, Manager - Corporate Taxes, AK Steel 9227 Centre Pointe Drive, West Chester, OH 45069 513-425-2685 Fax: 513-425-5251 allan.thompson@aksteel.com Mr. Thompson is a graduate of University of Toledo (1977 - B.B.A., Accounting) and Cleveland-Marshall College of Law (1980 - J.D., Taxation). His career includes 9 years of tax consulting experience in public accounting and over 22 years in tax management positions with several large Ohio manufacturers. He has over 25 years of hands-on experience in various types of tax audits at the Federal, state and local levels with particular emphasis on Ohio sales and use tax. During this time he has worked toward equitable resolutions of compliance audits, voluntary disclosure agreements, administrative appeals and pending litigations with representatives of taxing jurisdictions ranging from field auditors to tax commissioners. Mr. Thompson has made numerous presentations for Lorman Education Services and the Ohio Society of CPAs on the subject of Ohio sales and use tax exemptions and exceptions. He recently started a second tour of duty as Chairman of the Tax Committee of the Ohio Manufacturers Association. Brad Danton, Principal, PricewaterhouseCoopers LLP One North Wacker Chicago, IL 60606 312.298.2577 Fax: 813.329.9799 stephen.b.danton@us.pwc.com Brad Danton leads the Sales, Use and Excise tax practices for the Firm in the Greater Chicago Region. Brad has 12 years of public accounting experience in the state and local tax area. Before joining PricewaterhouseCoopers, he had worked for a large Detroit based law firm as a civil defense litigator. Since joining PricewaterhouseCoopers, Brad has gained extensive experience in Multi-state Sales, Use and Excise Tax matters serving clients within manufacturing and service industries. Services including: transaction analysis and refund reviews, sales & use tax issues, strategies related to leasing of aircraft, voluntary disclosure, audit defense and representation of clients before the Michigan Tax Tribunal, due diligence and nexus reviews, tax manual development and training, as well as multi-state compliance. Brad is also a subject matter specialist on tax consultation, project benchmarking and advice, and consulting with the IRS regarding medical device excise tax compliance. Brad has also served as an instructor of State and Local Taxation at Wayne State University in Detroit, Michigan and has published materials relating to state and local tax on-behalf of the American Bar Association, Michigan Association of Certified Public Accountants, and Michigan Bar Association. Brad obtained his Bachelor of Arts degree from the University of Michigan, his Juris Doctorate from Michigan State University-DCL, and LLM in Taxation for Georgetown University.

Making Sense of the Current Ohio Sales and Use Tax Environment Allan Thompson AKSteel Corporation allan.thompson@aksteel.com (513) 425-2685 Brad Danton PricewaterhouseCoopers LLP stephen.b.danton@us.pwc.com (312) 298-2577 Ted Bernert Baker & Hostetler LLP ebernert@bakerlaw.com (614) 228-1541

Topics Obligations for sellers Obligations for purchasers Taxation in the digital age Compliance issues and refunds 2

Obligations for Sellers In Ohio, the consumer is the taxpayer Vendor or seller have legal charge against purchaser In practice, some sellers extremely reluctant to add tax; others overcharge tax - Effect of class action proceedings against sellers 3

Obligations of Sellers Restaurants beware the food-to-go problem Restaurants and bars-targets of audits A vendor may lose the bad debt deduction if transferring the receivable to third parties. 4

Multistate Sales and Use Tax Nexus Basic Principles Leading State Cases Colorado and Illinois Federal Legislation and Alternatives 5

Multistate Sales and Use Tax Nexus Nexus for tax purposes means sufficient contacts with the state thereby permitting the state or locality to impose an obligation on a remote seller or service provider to pay or collect a tax. Leading decision is the 1992 Quill case announced by the U.S. Supreme Court: Quill Corporation v. North Dakota, 504 U.S. 298 (1992). Addresses use tax collection responsibility; Follows the 1967 U.S. Supreme Court decision in National Bellas Hess; The decision may or may not be limited to use taxes; Decision distinguishes between Due Process versus Commerce Clause nexus; and Suggests that Supreme Court will defer to Congress to address the nexus issues hereafter. 6

Multistate Sales and Use Tax Nexus Colorado tattletale statute imposes three requirements on non-collecting Internet retailers: Transaction notice to customer about obligation to collect use tax; annual mailing to customers summarizing prior year purchases; and tattletale report to state revenue department about the customer. The Direct Marketing Association challenged the Colorado legislation in federal court on Commerce Clause and privacy grounds. 7

Multistate Sales and Use Tax Nexus U.S. District Court in Denver issued a permanent injunction. Direct Mktg. Assn. v. Huber (U.S.D.C. Colorado, No. 10-cv01546-REB-CBS), March 30, 2012. The court barred enforcement of all notice and reporting provisions. Relief was granted under both the discrimination and undue burden claims under the Commerce Clause. 8

Multistate Sales and Use Tax Nexus On August 20, 2013, the United States Court of Appeals for the Tenth Circuit failed to reach the substantive issues and determined that the District Court lacked jurisdiction to enjoin Colorado s tax collection effort. The case was remanded to the district court to dismiss the Commerce Clause claims of the Direct Marketing Association. 9

Multistate Sales and Use Tax Nexus On February 18, 2014, Colorado District Court enjoined the enforcement of the Colorado disclosure statute. The Colorado DOR announced that retailers need not comply. U.S. Supreme Court has accepted appeal. 10

Multistate Sales and Use Tax Nexus Overstock.com v. New York April 23, 2008, New York Amazon law amended so sales of goods to New York residents through the Internet presumed to trigger use tax collection when affiliate resident business is compensated by out-of-state seller. Presumption is that out-of-state seller was: "soliciting business [in New York] through an independent contractor or other representative if the seller enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an internet website or otherwise, to the seller, if the cumulative gross receipts from sales by the seller to customers in the state who are referred to the seller by all residents with this type of an agreement with the seller is in excess of ten thousand dollars during the preceding four quarterly periods ending on the last day of February, May, August, and November" (N.Y. CLS Tax Law 1101[b][8][vi]). 11

Multistate Sales and Use Tax Nexus Overstock.com v. New York Due Process, Commerce Clause, and Equal Protection challenges. Challenged facial constitutionality, withdrew as applied challenges. New York s highest court, the Court of Appeals, held: No facial violation; physical presence need not be substantial; Was rational to believe that New York resident businesses would actively solicit to increase referral fee income; New York offers opportunity to rebut presumption by including required language and filing annual certification. U.S. Supreme Court refused to hear the case. 12

Multistate Sales and Use Tax - Illinois Illinois statute creating click-through nexus standard even broader than New York Amazon statute because the existence of affiliates created nexus and not simply a presumption that the affiliates were marketing on behalf of the remote seller. The Circuit Court of Cook County issued a permanent injunction against the Illinois statute. Performance Mktg. Assn. v. Hamer (Circuit Court of Cook County, Illinois, No. 2011 CH 26333.) The court also found that the Illinois statute violated the Internet Tax Freedom Act passed by Congress in 1998. 13

Multistate Sales and Use Tax - Illinois The Department of Revenue appealed to the Illinois Supreme Court. The Supreme Court found for the taxpayer solely based on Internet Tax Freedom Act. Performance Marketing Association, Inc. v. Hauser, 2013 IL 11449 (October 18, 2013). 14

Multistate Sales and Use Tax Nexus Marketplace Fairness Act Legislation would permit the states to require remote sellers to collect the state s use tax although the seller lacks physical presence in that state. Legislation would overrule Quill decision. Provides a $1,000,000 threshold to gross (not limited to taxable) sales nationwide before seller is required to comply. States must either join Streamlined Sales and Use Tax Agreement or legislate certain measures of uniformity for both state and local taxes. 15

Multistate Sales and Use Tax Nexus Marketplace Fairness Act MFA does not pre-empt other state-imposed standards, e.g. click-through nexus. MFA does not create nexus for other taxes. MFA does not answer how to challenge states that are not members of SSUTA as to the states compliance with simplification requirements. Passed the U.S. Senate on May 6, 2013 by 69-27 vote. Referred to the House Judiciary Committee. First hearing on alternatives to MFA held on March 12. 16

Sourcing Direct Mail To address issue of multiple destinations Two kinds of direct mail Advertising and promotional Other direct mail Advertising and promotional Sourced to principal address from which shipped Advertiser can assume task of assigning sourcing Advertiser can inform printing company of destinations Other direct mail Sourced per the records of printer to purchaser s location Purchaser can assume task of assigning sourcing 17

Obligations of Purchasers Importance of filing use tax returns Cannot rely on vendors Will not collect tax if lacking nexus. May fail to collect tax even when it has nexus. May charge tax on exempt sales. May collect the wrong rate. 18

Obligations of Purchasers Absent the filing of consumer use tax returns, no statute of limitations exists even if filing as vendor. Need to comply post-amnesty. When not filing return, lose ability to source purchases in a favorable manner. 19

Obligations of Purchasers Difficult compliance issues Employment services Manufacturers Exemption Electronic services 20

Employment Services The Hard Questions Distinguishing between taxable services and non-taxable services Determining when a contract qualifies as a permanent assignment 21

Employment Services Taxable versus non-taxable services Defining an employment service versus applying the contractors exemption Clear examples of the distinction Staff augmentation General contractor 22

Employment Services Easier issues Health and medical Intercompany Resale-very limited Must be an actual employment agency involved 23

Employment Services Staff augmentation Additions to the pool of workers Replacement for supervised staff, i.e. the secretary Seasonal workers or personnel for a temporary project 24

Employment Services Contractor General construction contractor Law firm engaged to try a case Accounting firm engaged to prepare financials Programmers? 25

Employment Services Issues that create disputes Billing by the hour Contracts that were drafted without consideration of the taxes Is the contract results-oriented and anyway what does that mean? 26

Employment Services Issues that create disputes (con t) Who supervises and controls the personnel and anyway what is meant by supervision and control? Skilled and professional workers Professionals can be the subject of employment services What about personnel with skills that exceed those of the customer who is said to supervise and control? What of requirements of independence inherent in the relationship? 27

Employment Services Permanent placement Two requirements Contract of at least one year All employees permanently assigned 28

Employment Services Contract of at least one year Need not be in writing, but Usually cut and dried 29

Employment Services Permanent Assignment Contract terms versus performance Looking back versus looking forward Operates distinctly from one year requirement One bad apple rule 30

Employment Services Audits Need for contracts, statements of work and invoices Contract language drafted for a different purpose Ability to bring in parol (outside) evidence When must the documents be available? 31

Employment Services Audits (con t) Proving the nature of the contract Proving the object of the contract Proving the presence/absence of supervision and control Proving permanency 32

Manufacturers Difficult compliance issues Manufacturers Exemption R. C. 5739.02(B)(42) and R.C. 5739.011 for ingredients and items used or consumed primarily in manufacturing for sale. Ohio Adm. Code 5703-9-21. Key issue is point of commitment. Items used in production area that are challenged as used in housekeeping. 33

Manufacturers Difficult compliance issues Manufacturers Other important exemptions for manufacturers Resale Packaging Research and development Pollution control Ohio Adm. Code 5703-9-21 will soon be reviewed by the Ohio Tax Department. It is important that affected persons stay involved in that process. 34

Electronic Services Automatic data processing for use in business Processing of others data, e.g. payroll service Time sharing How far can this taxable category be applied 35

Electronic Services Electronic information services for business use Searchable data bases, e.g. LEXIS/NEXIS Not credit card authorization or insurance verification: Marc Glassman, Inc. v. Levin, 119 Ohio St.3d 254, 2008-Ohio-3819 Internet Service Provider ( ISP ) tax may be preempted by Internet Tax Freedom Act. Electronic publishing is similar. 36

Electronic Services Computer Services Related to computer sale and training For system software Not all computer-related services are taxable 37

Developing Issues Reimbursement of travel expenses as part of the price Separate statement of taxable and nontaxable services 38

Taxation in the Digital Age Topics Software Electronic services Digital Products Internet Tax Freedom Act Taxing the Cloud 39

Software Defined: "Prewritten computer software" means computer software, including prewritten upgrades, that is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of two or more prewritten computer software programs or prewritten portions thereof does not cause the combination to be other than prewritten computer software. "Prewritten computer software" includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than the purchaser. If a person modifies or enhances computer software of which the person is not the author or creator, the person shall be deemed to be the author or creator only of such person's modifications or enhancements. Prewritten computer software or a prewritten portion thereof that is modified or enhanced to any degree, where such modification or enhancement is designed and developed to the specifications of a specific purchaser, remains prewritten computer software; provided, however, that where there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser for the modification or enhancement, the modification or enhancement shall not constitute prewritten computer software. Software as tangible personal property Separately stating charges for custom software 40

Digital Products Taxable digital products need not be permanent Books Music Videos Not other digitized products Sales to or by cable service provider, video service provider or radio or TV station are not taxable 41

Permanent Internet Tax Freedom Act (HR 3086) Current temporary prohibition on the taxation of internet services is scheduled to end November 1, 2014 H.R. 3086, which would make permanent the ban on internet taxation was passed by the U.S. House of Representative overwhelmingly on July 15, 2014. Meanwhile, in the U.S. Senate S. 2609 was introduced to extend the ban but only for ten years and not permanently. S. 2609 also links the passage of the Internet Tax Freedom Act extension to the enactment of a provision similar to the Marketplace Fairness Act. See discussion of the Marketplace Fairness Act above. 42

Permanent Internet Tax Freedom Act (HR 3086) HR 3086 would eliminate the grandfather provision by which Ohio enacts a tax on internet services. If HR 3086 were enacted, Ohio could not impose tax on the charges imposed by the internet service provider (ISP) in a business context. It is unclear whether prohibiting Ohio from imposing tax on the internet would affect currently taxable services other than business ISP. One issue that remains is the use of the anti-discrimination provision of the current and proposed Internet Tax Freedom Act prohibiting taxes that are imposed on internet-provided services and not on similar services not provided by internet. 43

Cloud Computing Helpful definition developed by National Institute of Standards & Technology: Cloud computing is 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. 44

Cloud Computing Industry Overview Essential characteristics: On-demand self-service Broad network access Resource pooling Rapid elasticity Measured service 45

Cloud Computing Industry Overview Three primary classifications: o Infrastructure as a Service ( IaaS ) o Platform as a Service ( PaaS ) o Software as a Service ( SaaS ) Cloud computing does not include transactions that merely occur in the cloud such as purchase of digital goods, streaming music or video, or in-app purchases 46

Practical considerations Understand exactly what the cloud computing service entails o Is software involved? If so, is it open source? o Is software the true object of the transaction or merely incidental? o Are other services provided? Understand legal agreement, intent of the parties, and invoice presentation Two different vendors may classify their nearly-identical service offerings differently 47

Varying state tax approaches Tangible personal property Information services Data processing Computer services / Digital automated services Telecommunications services Web hosting Remote storage service 48

Overview of state tax treatment SaaS / Remote access software / ASP o License may or may not be granted o No download of the software to customer s location o Some states have concluded that there is no transfer (download) of TPP; therefore, nontaxable For example: NJ, OK, CO o Others do not recognize this distinction and tax software the same regardless of how accessed For example: WA o Other states tax SaaS / remote access software under a service classification For example: CT, TX, OH, SC 49

Overview of state tax treatment IaaS o Computing power o Remote storage Both are generally viewed as nontaxable services, except in states that broadly tax computer services (e.g., CT) or data processing services (e.g., DC, TX, OH) Note the specified exemption for remote storage services in WA Florida DOR recently opined on IaaS in Florida Technical Assistance Advisement 14A19-001, 3/13/2014 released 6/12/2014 (found to be nontaxable) Tennessee DOR recently opined on both types of IaaS (computing power and remote storage) in LR 13-12 (both found nontaxable) 50

Sourcing considerations Generally, sourced to the location where the customer uses the services Many states source service-based transactions subject to the same hierarchy as all other retail sales Multiple Points of Use ( MPU ) available in some states Local tax sourcing in origin-based states 51

Recent developments Opinion No. 14-0001, Ohio Tax Commissioner (2/4/2014) o A company that provides cloud-based applications and related services to support customers' telecommunications equipment is subject to tax on sales of its cloud collaboration services. The Ohio Tax Commissioner ruled that the cloud services are taxable in Ohio as automatic data processing services if the services are used in business, and the benefit of the services are received in Ohio, i.e., the customer is located in Ohio and accesses the service from their location in Ohio. In addition, the charge for hosting services is taxable as part of the price of the automatic data processing service. On the other hand, the company itself was not subject to Ohio use tax on the software and hardware used to provide the cloud offering because the software and hardware was located outside Ohio. 52

Sourcing considerations New Mexico Physical presence Ruling No. 401-13-1, New Mexico Taxation And Revenue Department (1/31/2013) o A subscription to access web-based tools which compile and analyze specific data sets on labor and employment is subject to gross receipts tax in New Mexico. o The Taxation and Revenue Department determined that the subscription to access software online is a license of intangible property. o Although the taxpayer and all of its employees are located out of state, the location of the license is presumed to be the customer s business location. o However, fees that are associated with consulting and analyst services performed outside the state are not subject to the gross receipts tax. 53

Recent developments Technical Bulletin TB-72, New Jersey Division of Taxation (7/3/2013) o SaaS: The sale of SaaS is not a sale of tangible personal property but is the sale of a service. Services in New Jersey are only subject to tax when specifically numerated. SaaS are not taxable unless considered information services. o PaaS: The sale of PaaS is also not a sale of tangible personal property, but is considered a service. PaaS is not listed as a taxable service; therefore it is exempt. However, the PaaS provider must pay sales tax on the purchase of any hardware, software or other equipment used to provide the service, except where the business use exemption is applicable. o IaaS: The sale of IaaS is also not a sale of property or an enumerated service. The IaaS provider must pay tax on any purchases of tangible goods, telecommunications services, utilities, charges for servicing or repairing, etc., for use in the performance of their service contracts. The IaaS provider is not deemed a reseller of these goods and services even if these purchases are passed on as a separate line item. 54

Recent developments Michigan - Auto-Owners Insurance v. Dept. of Treasury o Access to third party software hosted remotely was properly characterized as a nontaxable service as opposed to the sale of prewritten computer software o Taxpayer did not take delivery of the software o Although computer software was involved in the transactions, the taxpayer did not obtain the requisite level of control required to satisfy the definition of use of the software o Even if software was delivered to the taxpayer, the software was in fact simply an incidental component of the principal transactions for the various services 55

Recent developments Illinois o Department of Revenue recently issued a general information letter (ST 13-0074-GIL) regarding the applicability of the state s telecommunications excise tax to a taxpayer s cloudbased services o Taxpayer provided a cloud collaboration service offering that provided remote hosting of software that provided enhanced functionality for a customer s phone system o The Department found that the service did not constitute the provision of telecommunications service 56

Recent developments Indiana o Letter of Finding 04-20130306 (Feb. 12, 2014) o Internet-based information platforms and computer software maintained on servers outside the state, but accessed via the Internet may be taxable transfers of prewritten software. o Access of prewritten software, even if via the cloud, constitutes a taxable transfer of software because customers gain constructive possession and the right to use, control, or direct the use of the software. New York o Sales of a product that provides users single sign-on access to electronic research and data from multiple sources are subject to sales and use tax because the product, in aggregating the information, is a taxable information service. N.Y. Advisory Opinion, TSB-A-14(3)S (Jan. 27, 2014) 57

Recent developments WA AK MT ME ND MN OR ID WY NV CA SD AZ CO KS OK NM MA CT RI PA IA IL TX HI NY MI NE UT VT NH WI MO NJ MD DE OH IN WV KY DC NC TN SC AR LA VA MS AL GA FL Taxable Nontaxable No specific formal guidance 58

Best Practices Preparing For An Ohio Sales & Use Tax Audit An OH sales & use tax field audit begins when the auditor contacts you, the taxpayer, by letter or phone to schedule a pre-audit meeting. In this meeting, the auditor will typically: Present an audit authorization letter and other documents for you to sign Provide a list of what taxpayer records are required to complete the audit Ask you to provide additional information such as details of your accounting procedures 59

Early Taxpayer To Do Steps 1) Generally: a) Prior to the initial audit meeting, it is generally a good idea to understand your potential exposure issue(s) and begin preparing associated defenses. 60

Early Taxpayer To Do Steps 1) Generally: (cont.) b) Information about and understanding of your company s tax records and operations are invaluable for upcoming discussions about audit approach (e.g., comprehensive vs. specific, batch vs. statistical sample), test period selection criteria, projection methodology, etc. 61

Early Taxpayer To Do Steps 1) Generally: (cont.) c) Proper pre-audit planning will make the audit process move forward quicker and smoother for everyone involved. 62

Early Taxpayer To Do Steps 2) Review your company s sales & use tax procedures: a) Sales tax compliance procedures Confirm that sales tax is properly charged on sales invoices to taxable customers - State/county and other permissive tax rates are charged 63

Early Taxpayer To Do Steps Confirm that sales tax is properly collected from customers and remitted to Ohio 64

Early Taxpayer To Do Steps Confirm possession of sales tax exemption certificates from untaxed customers - Ohio or multistate resale certificate - Blanket/unit exemption certificate (purchaser or thing purchased is tax exempt) - Direct pay permit 65

Early Taxpayer To Do Steps Collect above certifications from taxable customers if not in your possession - Don t wait! - Generally canvass; specifically follow-up as necessary - Solicit assistance from A/P, purchasing, marketing or others in the company that have a relationship with the customer 66

Early Taxpayer To Do Steps b) Use tax compliance procedures Confirm that sales tax is not being paid to suppliers/vendors Confirm that use tax is properly self-assessed on taxable purchases and paid to Ohio - State/county and other permissive tax rates - Familiarize self with sales & use tax exemptions that apply to your business 67

Early Taxpayer To Do Steps c) Auditor s report from previous audits and any other relevant correspondence received from the Department of Taxation Check accuracy of facts about company Check recitation of assessment issues Sampling methodology Audit procedural timelines Check for revisions to compliance procedures 68

Early Taxpayer To Do Steps 3) Review your company s sales and use tax records: a) Confirm existence and availability (on site vs. remote access) b) Confirm adequacy (audit period coverage, format) c) Confirm compliance of records with sales & use tax procedures d) KISS approach to fulfilling information requests e) Gather and organize records 69

Early Taxpayer To Do Steps 4) Review your company s operations: a) Meet with and/or communicate as necessary with company personnel to obtain a proper understanding of your company s facts and tax compliance positions b) Tour company operation(s) c) If necessary, communicate with your company s vendors/customers to obtain additional information 70

Early Taxpayer To Do Steps 5) Develop a working relationship with the auditor: a) Knowledge of the law, fairness, reasonableness and flexibility can vary from auditor to auditor b) Meet with and/or communicate (e-mail, snail mail, telephone, etc.) as necessary with the auditor to initially present and advocate your company's tax positions 71

Early Taxpayer To Do Steps 5) Develop a working relationship with the auditor: (cont.) c) Timely prepare any necessary correspondence (e.g., Power of Attorney forms, statistical sampling agreements, etc.) that will be submitted on your company's behalf d) Arrange for tours of company s operation(s); provide process flow diagrams, glossary of operations terms and other taxpayer-speak references 72

Early Taxpayer To Do Steps 5) Develop a working relationship with the auditor: (cont.) e) Provide suitable workspace for the auditor f) Don t be afraid to ask the auditor for rationale behind questionable information requests 73

Early Taxpayer To Do Steps 6) Famous last words: a) Most people don t plan to fail; they simply fail to plan. b) The auditor is your customer and the most important product you have is credibility. c) Remember the Golden Rule. Better yet, practice it. d) The early bird gets the worm, but the second mouse gets the cheese. Steven Wright e) Don t sweat the petty things and don t pet the sweaty things. George Carlin 74

New Refund Procedure Department has previously used the T300 to notify taxpayers of a reduction to their refund. T-300 used to file appeal. Sales & Use Tax Division Refund Unit ended its use of the T-300 about 2 years ago. Audit will no longer use T-300. 75

New Refund Procedure How do I file an appeal in a T-300less world? - Taxpayer will receive dated notification of denial (partial or in full). - Taxpayer has 60 days from the date of the letter to appeal and/or provide additional information. - If additional information doesn t result in full refund then will require appeal to Tax Appeals. 76