Have you considered sales tax recovery?
The financial impact of the COVID-19 pandemic continues to impact businesses across all industries. During these challenging times, businesses need to find ways to get cash in the door and add value to their bottom line. One way to do this is through a sales tax recovery review.
Managing sales tax has been and continues to be a complex and time-consuming burden for most businesses. State and local tax laws, regulations, and exemptions are constantly changing. To make things more difficult, accounting teams usually have limited time and resources to review invoices for sales tax overpayments. And most vendors usually default to charging tax on all sales, even if tax should not be collected.
This can lead to businesses paying more sales tax than legally due. From prior experience and industry knowledge, Weaver’s State and Local Tax professionals have found sales tax overpayment errors may occur on 10% or more of a business’s annual spend and should be reviewed frequently for overpayments.
How can you help your business survive cash downturns?
Businesses may qualify for sales tax exemptions — exemptions that can lead to significant savings to the bottom line. Taking advantage of these tax exemptions requires time and specialized knowledge.
The lookback period for sales tax refunds is three to four years in most jurisdictions. Open time periods for the recovery review fall off each month therefore it is important to start a sales tax recovery as soon as possible.
Below are example spend categories where sales tax overpayments are usually found:
- Services, typically services are non-taxable unless specifically named as a taxable service
- Utilities (e.g., natural gas and electricity)
- Items purchased for resale (e.g., raw materials, inventory, services)
- New construction projects
- Manufacturing and pollution control equipment
- Software, Software-as-a-Service (SaaS)
- Research and Development
- Freight and shipping
- Third-party services
- Wrapping and packaging supplies
Businesses may also obtain refunds for sales tax remitted to the state that relate to bad debts due to lack of customer payment, which unfortunately may be occurring much more often now than ever before. Remember, if you remit sales taxes on an accrual basis for sales that become bad debts, most states offer relief in the form of a refund or other credits.
All industry types have the opportunity to find and recover sales taxes overpaid but not all industries are treated equally. Some industries reap the benefits more than others due to a number of factors. These factors may include legislators enacting tax code focused on providing benefits to the types of businesses it wants to attract to its state for economic or social reasons. Many exemptions and exclusions in the tax code and regulations may be outdated or ambiguous and thus no longer fit the intended industry or may allow for a more broad application offering expanding tax savings opportunity. Examples of industry types commonly overpaying sales taxes include:
- Oil and Gas Exploration and Production companies
- Midstream Energy companies
- Refineries and other downstream energy companies
- Software developers
- Telecommunication providers, broadcasters
- Civil and Commercial construction contractors
- Commercial Airlines and Transportation companies
- Financial Services and Institutions
- Multi-state Corporations with a centralized purchasing function at Headquarters
What is the recommended process for a sales tax recovery?
The best approach for sales tax recovery is two-phased: a focused assessment and evaluation of all overpayments and other savings opportunities available, followed by a detailed review of those savings areas and preparation of refund claims to recover any and all overpayments.
Phase One - Assess and Evaluate
- Review sales/use tax payment records. Use data analytics and technical experience to examine accounts payable, fixed asset, use tax accrual, and expense records for all periods open under statute.
- Identify and quantify refund opportunities. Search for smart, innovative tax recovery opportunities.
- Document findings and evaluate options with clients. Deliver review findings, recommendations, and options for refund recovery and mitigating exposures.
Phase Two - Overpayment Recovery, Deficiency Correction
- Detail review. Perform in-depth detailed review of all refund opportunities, documenting support and evidence.
- Prepare and submit. Process refund claims, credits and/or vendor refunds..
- Recover and negotiate. Work with state auditors throughout claim verification process and negotiate settlements if necessary ensuring every penny of savings is achieved.
Weaver is here to help.
Our Weaver State and Local Tax professionals are here to help you. We have in-depth experience completing sales tax recovery projects across all industries. Recovery projects are conducted by our experienced professionals with decades of sales tax experience, who have achieved sales tax savings for our clients in excess of $250 million.
We utilize the most advanced data mining, software, and research tools to efficiently identify and recover sales tax overpayments – saving you time and resources. We know what to look for and can identify opportunities quickly to maximize your benefit without you having to wait months to receive review findings. Our professionals leverage their extensive industry knowledge, experience with recovery services, and are very familiar with available exemptions and exclusions that apply to your business.
We recommend and help implement process improvements to prevent future tax overpayments on many of those reoccurring purchases in your business. Thus, your business receives continued savings in the future — at no additional cost.
For overpayment sales tax recovery services, our fees are based on a percentage of savings we achieve and the best part about this is you pay us nothing until and unless we obtain you tax savings.
If you would like to discuss your situation and learn how Weaver can help you, please schedule a complimentary consultation with our State and Local Tax professionals. We are here to help you find opportunities to keep your business cash flowing and recover post-COVID-19.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act modified several sections of the Internal Revenue Code of…