got nexus? – gaining a handle on sales tax compliance
TRANSCRIPT
Start Time: 2:00pm EST
Welcome!
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
Today’s Presenters
Sean Munzert Net@Work
Michael Fleming Peisner Johnson & Company, LLP
Complimentary Nexus Review
Peisner Johnson has offered a Complimentary Nexus Review to all Attendees
• You will receive the Webinar Recording, Slide Deck and link to a short Questionnaire tomorrow.
• Fill out the questionnaire and Peisner Johnson will follow-up with you for a Free Review.
Got Nexus?Common myths about filing in a new state
● Founded in 1992
● Registered CPA firm
● State & local taxes only
● Former state auditors & other professionals
● Consult in all states & Canada
Who Are We?
● Materiality - Even though a state may assert you should register and collect taxes, it may not make good business sense.
● Be conservative when planning.
● Be aggressive when under Audit.
Important Points
QUESTION
What is nexus?
Nexus: A connection; a link or tieMinimum level of physical presence that allows a jurisdiction to require you to register, collect, and remit sales and use tax
In the News● Marketplace Fairness Act● Online Sales Tax Proposals● Revisit Quill?
Nexus Myth 1
If the Marketplace Fairness Act Passes,
Everyone Will Have Nexus Everywhere,
and Nexus Will Be Obsolete.
Let's Go to Court
Court Cases
● ScriptoGeorgia company used independent sales reps in Florida, and Supreme Court held that it had significant connection (1960)
● National Bellas Hess1967 Supreme Court Case. National Bellas Hess, Inc. v. Department of Revenue of Ill., 87 S.Ct. 1389 (1967)
Court Cases● Tyler Pipe
Texas company with no property, offices, or employees in Washington. Supreme Court agreed that activities created nexus and assessment stood (1987)
● Quill CorporationFor sales and use tax purposes, the Supreme Court held that a taxpayer must have a physical presence in the state. Quill Corporation v. North Dakota, 112 S.Ct. 1912 (1992)
What Creates Nexus?
Obvious
Less Obvious
Trade Shows
● 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?
NecessitatesWatching
Nexus-Creating Activities
Obvious● Buildings, property● Employees
Less Obvious● Independent sales reps● Sub-contractors, agents● Installation, training, maintenance● Rented or leased property
Generally:● Register
● Collect the sales tax/pay the income tax
○ Collect a proper resale certificate in lieu of tax
● File regular tax returns
I have nexus. Now what?
Nexus Myth 2
Unless We Have An Office or
Employees in A State, We
Do Not Have Nexus.
● Auditing your customers
● Information sharing with other states
● Special task forces
● Leads○ Former employees○ Competitors
How do states find you?
Nexus Questionnaires
The state already suspects you.
● Questions identify:○ Assets in the state○ Activities in the state
● Response deadline
● Penalties of perjury
Alabama"I declare that the information furnished in response to this questionnaire is to the best of my knowledge and belief, true, correct and complete.”
Michigan“I declare, under penalty of perjury, that the information provided in this questionnaire and any attachments is, to the best of my knowledge, true, correct and complete. If prepared by a person other than officer, partner or owner of the business, this declaration is based on all information you have knowledge.”
Questionnaire Verbiage
Texas"I declare that the information in this document and any attachment is true and correct to the best of my knowledge and belief.”
Michigan“Under penalties of perjury, I declare that the information furnished in this questionnaire is, to the best of my knowledge and belief, true, correct and complete. If prepared by a person other than an officer of this corporation, this declaration is based on all information of which you have knowledge.”
Questionnaire Verbiage
Nexus Myth 3
The Best Time To Take Action is
After We Get a Nexus
Questionnaire.
● No statute of limitations
● Seven or more years of tax assessments
● Penalties and interest○ Up to 60%
If the State Finds You
QUESTION
THE PROBLEM NEVER GOES AWAY…
IT ONLY GETS
BIGGER
CASE STUDIES
Service Company
● Small company in a couple of states
● Got national contract
● Used subcontractors to do local work
● Audited and assessed
● Registered in all states
Nexus Myth 4
Independent Subcontractors
Do Not Give Us Nexus.
Software Company
● Specialized software
● Traveled to customer sites to install and train
● Audited one of their customers
● States requested prior seven years returns
● $6,500,000 + liability
Bank Bag Company
● Largest client requested tax be charged
● Register in every state
● Set up the billing systems with correct rates and taxability
● Registered in all states
Nexus Myth 5
We Can Collect Tax From
Just One of Our Customers
in a State.
Sale of Company
● Purchaser conducted due diligence
● Determined they had nexus in states where they were not registered
● Purchaser requested they either discount price of business for amount owed or place funds in trust until resolved.
QUESTION
The Biggest Tragedy in Sales Tax
Tax you could have collected (willingly) from your customer at the time of the transaction ends up coming out of your pocket three years later…
With Penalties and Interest!
THE PROBLEM NEVER GOES AWAY…
IT ONLY GETS
BIGGER
● What states am I registered in now?
● Where else do I have nexus?
● What do I sell in those states?
Define the Problem
● Sales
● Purchases
● Net Income
● Apportionment
● Refund opportunities
Quantify the Problem
Fix the Problem● Rank your states by potential
liability
● Possible approaches○ Do nothing○ Register○ Amnesty○ Voluntary disclosure
agreement (VDA)
Nexus Myth 6
We Can Just Get Registered
and Collect The Tax Going
Forward.
Problems with Registering Now
When did you first start doing business in our state?
● All back taxes returns due○ Back to day one
● Penalty and interest applies
State Amnesty● Not true amnesties● Amnesties are rare - short lived● Read the fine print● Not usually the best alternative
● SSTP is a true amnesty● All or nothing● OH & TN
● Most states allow for anonymous application
● Generally 3-4 year look back period.
● Generally 100% penalty waiver. Civil & Criminal.
● A handful of states eliminate or reduce interest.
VDA Basics
VDA Basics continued
● Many states restrict VDAs to out-of state companies and/or companies not already registered.
● Most states disallow VDAs if previously contacted.
● Many states require income/franchise taxes be included.
● Some states are requiring SOS registrations.
● No VDA ○ New Mexico - managed
audit- 7 year lookback
● Longer look back periods○ Hawaii - ten year look back○ Iowa - five years or ½ the
time○ South Dakota - five years
● Fully disclosed at application○ California, Illinois, New York
Variants
● Allow for VDAs after contact○ Connecticut, Florida & Michigan
● Waive some or all interest○ Texas, New Mexico, Nevada -
100%○ Oklahoma - 50%○ Wisconsin reduced from - 18-
12%○ South Dakota - Negotiated
Additional Variants
● MA company received poor advice from CPA stating they were not subject to sales tax and therefore did not register.
● SALT “expert” from MA said VDA not available due to MA headquarters. They needed to pay eight years plus penalty and interest.
● We knew a VDA was available, but generally no lookback benefit. We believed we could make a case for an exception for 36 months and were told to apply and ask for it. We got it and client was ecstatic.
Knowledge + Contacts
QUESTION
Costly Mistakes● Ignoring the situation
● Failing to collect tax at the time of sale
● Registering without a VDA in place
● Remitting tax to the wrong jurisdiction
Nexus Myth 7
Sales Tax Compliance is Too
Complicated and Too Costly.
Thank You For Attending
Sean Munzert, Net@Work Phone: 646-293-1781 [email protected] www.netatwork.com
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