Nobody likes a sales tax audit. In our experience most of the sales tax problems we see can be traced to one of five root causes: nexus, use tax, exemption certificates, taxability, and rates - which we call "hot spots".

1. Start Time: 2:00pm EST
Welcome!
Webinar Audio:
You can dial the telephone numbers located on your webinar panel.
Or listen in using your headphones or computer speakers.

2. Webinar Details
• Presentation is roughly 1 hour
• All phone lines are muted
• If anyone has any questions during this webinar – please type
them in your Questions Box located at the bottom of your
webinar panel

3. Today’s Presenters
Sean Munzert
Net@Work, Client Care Executive
Michael Fleming
Director, Peisner Johnson & Company, LLP
Mary Orefice
Net@Work, Compliance Account Executive

4. 180+ Business
Technology
Architects and
Consultants
IT Road
Mapping
& Strategic
Planning
Business
Process Review
Ecosystem
BI, Analytics
& Reporting
Cloud & IT
Managed Services
ERP/
Accounting
Web
Development &
e-Commerce
Sister Company
Payment
Processing
SWYPE
Sister Company
CRM &
Marketing
Automation
HRMS/
Employer
Solutions
Document
Management
Compliance
Solutions:
Sales Tax | Tax
Automation
Managed Print
Services
Sister Company

5. Take the Fear Out
of a
Sales Tax Audit

6. ● Founded in 1992
● Registered CPA firm
● State & local taxes only
● Former state auditors &
other professionals
● Consult in all states &
Canada
Who Are We?

8. I’m Here to Do Your Audit

9. Be Prepared
● Don’t wait for an audit to review where you may have
potential issues
● Take corrective action as soon as you can
● Review at least annually
● Consider using a third-party for different viewpoint

10. The 5 Hotspots
1. Nexus
2. Tax Rates
3. Taxability
4. Use Tax
5. Certificates

11. Poll
Question

12. Nexus

13. What is nexus?
Nexus: A connection; a link or tie
that allows a jurisdiction to require you to
either pay or collect taxes on its behalf.

14. Let's Go to Court

15. Quill Corporation v. North Dakota, 112 S.Ct. 1912 (1992)
For sales and use tax purposes, the Supreme Court held
that a taxpayer must have MORE than the “Slightest”
physical presence in the state.
Scripto v. Carson, 362 US 207 (1960)
Tyler Pipe v. Wash. Dept. of Rev., 483 US 232 (1987)
Court Cases

16. What Creates Nexus?

17. Obvious

18. Obvious

19. Less Obvious

20. Less ObviousLess Obvious
Less Obvious

21. Trade Shows

22. ● Some states consider software
TPP even when downloaded
● Licensing of software vs sale of
software.
● Customer downloads TPP you
have ownership of. You now
have a physical presence.
● Decision, Hearing No. 108,626,
Texas Comptroller of Public
Accounts, September 19, 2014
Downloaded Software?
Keep an eye
on this

23. Challange to Quill

24. Nexus-Creating Activities
Obvious
●Buildings, property
●Employees
Less Obvious
●Independent sales reps
●Sub-contractors, agents
●Installation, training, maintenance
●Rented or leased property

25. Economic Nexus
● Alabama -- $500,000
● California -- $500,000
● Colorado -- $500,000
● Connecticut -- $500,000
● Michigan -- $350,000
● New York -- $1,000,000
● Ohio -- $500,000
● Tennessee -- $500,000
● Virginia -- $1
● Washington -- $250,000

26. Common Mistake
Collect Tax for
Traditional
Channel but not
Online Channel

27. Poll
Question

28. THE PROBLEM NEVER
GOES AWAY…
IT ONLY GETS
BIGGER

29. Tax Rates

31. Under-Collecting

32. The Greatest
Tragedy in Sales Tax
Paying tax, plus penalty and interest, out of your own
pocket that you could have collected at the time of the
transaction.
Common
Mistake

33. Taxability

34. ● Things that are taxable in one jurisdiction may not be
taxable in another…
● Except when it is.
● Rules are constantly changing - more than 5,000 changes
in the last year alone

35. Fundamentals
Tangible Personal Property (TPP)

36. Not Taxable By Default

37. Repairs of TPP (exceptions) Amusement Services
Real Property Repair and
Remodeling
Debt Collection Services
Real Property Services Cable TV
Data Processing Electricity
Information Services Telecommunications
Security Services Services Associated with the
Sale of TPP

38. Fundamentals
● What about digital products?

39. Fundamentals
● Sellers responsible for collecting and
remitting, but tax intended to fall on
purchaser.
● State will pursue seller and purchaser for
unpaid tax.

40. Use Taxes

41. Online Purchases

42. Putting Your System in Place
● Decide who should manage use tax accrual
○ Accounts payable department
○ Purchasing department
○ Tax department
○ Combination
Accruing Use Tax

43. Over-Payments
Hot Tip

44. Exemption Certificates

45. Exemption Certificates
Are Low-Hanging Fruit

46. Common Mistake
Pay Tax to
Drop
Shipper
Vendors

49. How States Find You
Five basic classifications of companies to be audited:
1. Large, multi-state, audited every three years
2. Red flags – large gross sales, non-taxable sales,
fluctuations, non-filers
3. Auditing of Customers
4. Prior audit deficiencies
5. Random
*Leads – Auditors, leads, informants

50. Poll
Question

51. Working with the Auditor
● FAQ: what’s the best
strategy for working with
the auditor?
● Don’t go overboard either
way
● Be assertive with things
that matter

52. Statute Waiver
What should you do if
an auditor asks for a
statute waiver?

53. Sampling Issues
● Carefully evaluate sample method
o Block sample, statistical sample, stratified
● Difficult to change later
● Tip: watch out for samples that…
o Are not representative of the population
o Have extraordinary purchases
o Also, make sure to address how to treat
credits in the sample

54. Setting Parameters
● Contact Person is key
● Understand tax law & policy
● Understand your business
● Facilitate information gathering
● Maintains message consistency
● Review list of errors and fix quickly

55. Setting Parameters
● Auditor letter
● Office policies
● Office hours
● Request a copy of all
docs auditor makes

56. Communicate
Did your vendors:
• Pay through audit?
Did your customers:
• Pay through audit?
• Remit as use tax?
• Have an exemption
certificate?

57. Credits & Refunds
● Auditors don’t automatically
look for refunds
● Most auditors consider
credits the taxpayer’s
responsibility
● You should review your
purchases to determine if
you overpaid tax during the
audit period
● Deficiency interest is higher
than credit interest

58. Auditor Negotiations
● Discuss with auditor what
has been found and why
● Request copy of law for
items that you do not
agree with or understand
● TIP - “Extraordinary”
items may be removed
from the sample

59. The Appeals Process
● Exit conference with
auditor
● Meeting with auditor
supervisor or manager
● Independent audit review
● Official protest
● Mediation
● Administrative hearing

60. Penalty & Interest Waiver
● Interest waiver rare
o Extraordinary delay
o Written documentation
of erroneous advice
● Penalty waiver not as rare
o First audit
o Tax collected not
remitted
o On-time filing

61. Five Costliest Mistakes
● Resale and exemption certificates
invalid or missing
● Missing invoices
● Audit rights and remedies not
known
● Auditor negotiation mishandled
● Use tax not accrued

62. The Document
You Should Not
Give an Auditor at
the Start of the
Audit

63. Please type in
your questions
Any Questions?

64. Thank You For Attending
Sean Munzert, Net@Work
Phone: 646-293-1781
smunzert@netatwork.com
www.netatwork.com
For more information:
Connect with
800-719-3307
www.netatwork.com
netatwork.com/blog
Net@Work YouTube
Follow us on Twitter: @netatwork_corp
Follow Net@Work on LinkedIn
Follow Net@Work on Google+
Follow Net@Work on Facebook
Contact your Net@Work Account Manager for any questions or concerns.
Or you can reach out to us via the information below.