With revenues slumping and budgets gaping at the seams, states are cracking down on sales tax noncompliance. The author of CCH Expert Treatise Library: State Sales and Use Taxation, Joe Moffa, points out six trends corporate tax departments should follow:
1. “Zapper” software. Zapper software interacts with accounting systems to segregate and erase transactions associated with cash sales so that those sales cannot be tracked without a physical receipt matching the electronic record. If you do certified audits for a company using point-of-sale systems that take both cash and credit, you need to be alert to signs of zapper use — particularly if the company allows multiple people, such as individual store managers, to access the accounting program.
2. New ways of doing business. Coupon websites, travel sites and other companies offering discounted goods and services have opened a confusing can of tax basis worms. With no uniform rules, different states have different regulations about whether organizations should charge sales tax on the total sale, the face value of a coupon, or the percentage of the sale received by the original seller.
3. Audit enforcement. Now that credit card companies are required to issue 1099s to businesses, states can access that data to determine whether companies’ reported state sales tax liabilities are feasible. Tax agencies are also sharing information with other state departments for audit purposes; in Florida, for example, Division of Alcoholic Beverages and Tobacco now informs the Department of Revenue how much alcohol and tobacco wholesalers have sold to retailers, making it easier for the Department of Revenue to spot underreported retail sales.
4. Nexus. Online commerce continues to complicate the question of which localities can collect sales taxes. One question coming up frequently is whether a server located in a given state qualifies as a physical or economic nexus. This area remains in flux; corporate tax and accounting professionals need to stay on top of the issues.
5. Use tax on consumers. States are trying to find ways to collect sales taxes on sales made in the state by out-of-state vendors. In some cases, they’ve added a line item on the state tax return asking consumers to pay taxes on these purchases. This can become an issue in sales tax compliance reporting; inaccuracies can trigger penalties for preparers, as well as for vendors.
6. Officer and shareholder liability. Speaking of triggering penalties, increasing numbers of states are passing statutes allowing them to pursue officers and shareholders personally for sales tax liability. In some states, this falls under criminal statutes for “theft of state tax funds.” Corporate tax professional beware.