Popular Articles

Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

read more
by Jeff Brown
April - May 2011

Related Article

Management

Read more

Sales tax

State budget woes mean more action on tax collection

WITH STATES including Minnesota facing budget shortfalls in record numbers, sales and use tax enforcement activity is on the rise. This increased activity is observable in two ways:

• Nexus inquiries are up, to determine whether companies not currently registered to collect sales and use tax in a state should be. (“Nexus” means the requirement for a seller to collect and remit tax.)

• Audit activity is rising, too, to ensure that those already registered to collect and remit sales and use tax in a state are, in fact, doing so in the proper amounts.

Potential nexus for sales and use tax purposes is typically determined via surveys asking a number of detailed questions concerning the taxpayer’s activity in the state.

These questions range from obvious things, such as whether the taxpayer’s employees or other representatives ever enter the state, and if so, for what reason; to more marginal things like telephone listings in the state, advertising activities, contracting with third parties for installation and warranty work, or even attendance at trade shows.

Recently, these nexus surveys have been outsourced by several states to very persistent private businesses. If your company receives such a survey, immediately provide a copy for your advisers and a second copy to work on draft responses. Do not complete and return these surveys without the advice of an accountant or attorney, as the way a question is answered may unnecessarily raise a red flag.

In situations where a taxpayer knows they have nexus in a state but have not been filing, there are often amnesty programs to reward those that come forward. These taxpayers generally have limited tax exposure and interest, but no penalties. In addition, taxpayers may seek an anonymous settlement that essentially provides the same thing. Either way, these options are worth considering. Be sure to involve your accountant or attorney in the process from the start.

Audits rising

For those taxpayers already registered in a state, sales and use tax audit activity is also on the rise. Generally, an auditor evaluates and tests the taxpayer’s processes to identify, collect, and remit the proper tax on all of its taxable sales. Typical adjustments identified by the auditors include certain freight charges and installation charges on sales of property, and in states where services are taxable, certain charges related to the provision of such services.

For those companies making exempt sales, such as due to selling wholesale, the auditor checks for properly completed exemption certificates. If these certificates are missing, tax may be, and often is, assessed.

In most states, including Minnesota, tax is levied upon retail sales or leases of tangible personal property (including “canned software”) as well as certain services, including building cleaning and maintenance, security, landscaping and parking.

There are a host of exceptions in terms of exempt products or exempt customers, which your accountant or attorney can help you understand. However, in some states, many more services may be taxed, and different rules often apply as to what products or purchasers are exempt. Therefore, when you sell products or services in another state, it is important to be aware of sales and use tax rules for those states.

Once the auditor has completed an examination of the company’s sales, the audit shifts to the use tax function (use tax is simply a self-assessed sales tax). The purpose is to ensure the proper sales tax was paid on all taxable purchases, and if not, that the equivalent use tax has been paid.

Typically the auditor looks at all purchases of fixed assets and all software and equipment maintenance contracts. In addition, the auditor examines a small period sample (perhaps several quarters) of purchases of supplies and certain other items to arrive at a percentage error rate to be applied to the balance of those accounts over the entire period under audit.

In these cases, it is critical to be alert for, and communicate, significant anomalies in the sample selected that may make it an inaccurate sample for extension over the entire period, as application of an artificially high error rate will lead to significant tax being assessed.

The use tax portion of the examination often generates adjustments, primarily with respect to Internet purchases, computer maintenance agreements, installation labor charges, and certain taxable services such as cleaning and lawn care. It is very rare that a taxpayer will not have at least some use tax adjustment as a result of these audits.

Upon completion of the audit, the auditor will have an exit conference and provide a listing of proposed adjustments, along with the reason for such adjustments. These listings can be quite long and need to be carefully reviewed, as there are often significant items that may be removed upon further discussion.

Once discussions have concluded, the auditor will provide final adjustments. The taxpayer can pay the adjustment, or if disagreement remains, protest those adjustments with the Department of Revenue. After the appeals process, the taxpayer may take the argument to the state tax court, but that is rarely done due to the time and expense involved.

Best practices

The best defense to sales and use tax audits is a good offense. The following are best practices that companies should consider following:

• Be sure that your accountant or attorney knows where you are doing business and, more importantly, exactly how you are doing it.

• Become educated in the sales and use tax rules in each jurisdiction where you’re doing business.

• If you have exposure in a given state, consider amnesty programs or an anonymous settlement offer.

• Review your procedures for identifying taxable sales and get proper documentation to substantiate nontaxable sales.

• Ensure that payables and procurement employees are educated in the use tax rules to minimize future use tax problems.

Finally, if an audit or nexus survey does come, get your accountant or attorney involved on the front end to help you prepare for the audit or the survey, manage the process, and evaluate the results.

Jeff Brown,
Eide Bailly LLP:
952.918.3558
jbrown@eidebailly.com
www.eidebailly.com