Sales and use taxes are collected by many state and local taxing jurisdictions. Each state, and sometimes the local municpalities and counties have conflicting laws determing whether a particular sale is subject to sales tax. Slight factual differences may result in dramatic tax effects.
Save Taxes in an Audit
Sales Tax auditors start with the approach that every sale is taxable. You, the taxpayer must prove the sale is not subject to taxation. Typical issues are whether the sale:
- Is of a Type that is not taxable (ex., certain services)
- Is to an Exempt Entity (reseller or non-profit)
- Does not have a connection (“nexus“) to the State
- Is the correct amount.
This requires planning and negotiation by your tax attorney in cooperation with your accountant or CFO.
Income Taxes Are Also Audited
Business and corporate income returns are also audited with most sales tax reviews to verify income and expenses. The technique used by the government is to “sample” a given year, determine the ratio of underreporting and multiply this for all open tax years. This can result in whopping tax liabilites, plus interest in penalties.
Tax recovery and minimization
State sales and use tax laws are growing increasingly complex and counterintuitive. It is important for your tax lawyer to act as your advocate in the negotiations with states and local taxing authorities. As part of the audit support and defense, your tax attorney will perform the detailed tax research and investigation to determine whether a particular activity is subject to tax.