A Thomson Reuters poll of tax pros at one of its Web events this week found that fully 87 percent have experienced an increased number of sales tax audits this year. About 70 percent say that their organization is focusing more strategically on indirect taxes, and 64 percent have implemented new programs and processes to remain compliant.
This is, of course, a self-selecting group of participants at a tax technology event, and one would expect these numbers to be high. Still, that 87 percent is striking. And every sales-and-use expert I've talked to this year confirms that tax authorities are stepping up their audit efforts in this area, for the obvious economic reasons.
Every company has its own way of handling sales and use tax compliance, so the errors that occur can be very inconsistent, according to Michael Moore, managing director at audit firm CBIZ MHM. But he warns companies against the following common mistakes, which can result in increased audit assessments:
1. Utilizing incorrect or inconsistent data. Technology continues to enhance companies' abilities in obtaining and utilizing data, but the output that comes from this data is only as good as the information that went into it.
2. Not providing training. Sales and use tax regulations can vary dramatically by state. Tax pros need to keep current on the legislative and judicial frameworks that apply to their company's transactions.
3. Not performing self-audits. Many businesses have a compliance structure that's been in place for years. Changes in personnel, systems, and the rules governing sales and use tax occur over time.
4. Being too complacent. Mapping the compliance of a company is an integral part of the sales and use tax function. Unfortunately, keeping the same structure in place without modification over a period of years can create an absence of challenge related to the taxes that the company is paying; it supports a repetitive activity, rather than an internal consulting mode.
5. Not providing enough time. Compliance can be overwhelming. Unless time is available for continued analysis — allowing the employees responsible for the tax area to prepare and analyze the tax positions the company is taking on various transactions — the benefits available from positive planning will not occur. ###