Understanding the advantages of having an expert review your company’s sales and use tax transactions; awareness of opportunities that potentially exist for obtaining refunds of sales and use tax already paid by your organization; learning more about the ins and outs of sales and use tax.

4. SALES & USE TAX:
A DIFFERENT APPROACH
Presented by:
Jason Skrinak, Principal
Michael Eby, Manager

5. INTRODUCTIONS
Jason Skrinak, CPA
• Principal of State and Local Taxes
• Represents the taxpayer in tax controversies;
reviewing business operations to determine
potential opportunities or deficiencies;
seeking potential refund opportunities for the
taxpayer
• Close working relationships with various
members of PA’s Department of Revenue
Michael Eby, CPA
• Manager working in the State and Local
Tax sector
• Tax compliance; managing sales and use
tax reviews; negotiating agreements with
tax jurisdictions; reviewing and
implementing entity restructuring plans;
representing clients in the tax appeal
process

6. • Why should sales & use tax issues be an important thing to consider
for almost all businesses?
• The basics in complying with sales & use tax requirements.
• Procedures for addressing notices, audits, and appeals.
• “Best practices” discussion: What can a taxpayer do to be proactive?
• Opportunities to save!
AGENDA

7. • It’s audited more frequently than any other tax type by jurisdictions across the
country.
• Unlike income tax, a mistake made in handling sales tax could lead to your
business having to pay for someone else’s tax liability.
• As a “trust fund” tax, corporate officers of the company could be held
personally responsible for significant sales tax liabilities.
• If your company is not taking advantages of available exemptions and
exclusions, you will be at a competitive disadvantage in the marketplace.
WHY SHOULD SALES & USE TAX BE IMPORTANT FOR
ALMOST ALL BUSINESSES?

8. • Properly register to collect sales tax in the jurisdictions you do business in
‒ Form PA-100
‒ Obtain Sales Tax License Number
‒ Display license at each respective place of business
• Properly document sales to customers
‒ Prices cannot state “sales tax included” in PA
‒ Ensure proper state’s tax is collected
THE BASICS - SALES TAX

9. • Report sales tax collected and remit
‒ Filing frequencies can be annually, semi-annually, quarterly, monthly, or even
twice a month
‒ 1% vendor discount in PA
THE BASICS - SALES TAX (CONTINUED)

10. • Semi-annual returns due August 20th and February 20th for liabilities less than $300
annually
• Quarterly returns due the 20th of the month following the quarter for annual liabilities
between $300 annually and $600 quarterly
• Monthly returns due the 20th of the following month for liabilities between $600-$25,000
a quarter
• Monthly prepayments are required when tax liability is greater than $25,000 quarter - due
the 20th day in the month in which tax is collected.
THE BASICS - PENNSYLVANIA SALES TAX FILING
FREQUENCIES

11. • What is use tax?
‒ The responsibility of the purchaser or “user”
‒ Corresponds with sales tax rate
• Determine if use tax is due on your purchases when:
‒ No sales tax is charged
‒ The incorrect rate is charged
‒ If you ultimately use your purchase in a different state from the one in which
you purchased it
THE BASICS - USE TAX

12. • Use tax is remitted on the same return as the sales tax in most states
‒ Separate reports are available for businesses that do not collect sales tax
‒ PA has use tax line on PA 40 (individual return)
THE BASICS - USE TAX (CONTINUED)

13. • Business Activity Questionnaires (BAQ’s)
‒ Have proper individual at company complete
‒ Request professional assistance to review BAQ prior to mailing back
• Voluntary Use Tax Compliance Program
‒ Department of Revenue initiative to educate taxpayers
‒ Notices sent out to businesses not registered to remit use tax
‒ DOR desk audits coming soon
PROCEDURES - WHEN THE STATE COMES KNOCKING…

14. • Initiated by DOR via “Notice of Audit”
‒ Type of tax
‒ Tax period
‒ Name of auditor
• Preliminary call to schedule the audit
• Audit commencement meeting
‒ Discuss procedures and timing (sample periods, etc.)
‒ Address taxpayer concerns
PROCEDURES - PENNSYLVANIA AUDIT PROCESS

15. • Provide information requested by auditor
• Proposed audit assessment from auditor
• Closing audit meeting to discuss final assessment and report
PROCEDURES - PENNSYLVANIA AUDIT PROCESS
(CONTINUED)

16. • Vendor charges the wrong state’s tax or rate (including local)
• No tax on delivery charge for taxable item
• Inconsistent use tax reporting (i.e. only accruing some purchases from a
certain vendor)
• Poorly worded intercompany agreements or invoices
• Unsupported positions (ex. no electric study)
PROCEDURES - WHAT IS THE AUDITOR LOOKING FOR?

17. • Missing or incorrect exemption certificates
‒ A unit certificate being accepted for all transactions
‒ An exemption that the auditor determines you should have known was not
applicable for the purchaser
• Deficiencies from a prior audit
PROCEDURES - WHAT IS THE AUDITOR LOOKING FOR?
(CONTINUED)

18. • If using a 3rd party representative, have all communication with the auditor
directed through the 3rd party
• Make sure the auditor is comfortable, but not too comfortable
• Look for potential credits (discussed further)
PROCEDURES - WHAT TO DO DURING THE AUDIT?

19. • Carefully review preliminary assessment
‒ If you know your customer or vendor was already audited and paid the tax, alert the
auditor
‒ Purchased product was shipped to an out of state location not identified on the invoice
‒ Obtain exemption certificates from customers (sometimes permitted by the auditor)
‒ Provide additional clarification or evidence
• Request penalty abatement
PROCEDURES - WHAT TO DO DURING THE AUDIT?
(CONTINUED)

20. • Board of Appeals
‒ “Black & white”
‒ Administered by DOR
‒ Compromise offers accepted
‒ Informal hearing with hearing officer
PROCEDURES - AFTER THE AUDIT

21. • Board of Finance & Revenue
‒ “Some gray”
‒ Administered by the Treasury
‒ Compromise offers negotiated with DOR General Counsel
‒ Formal hearing before Board
• Commonwealth Court
‒ “All gray”
‒ Administered by Attorney General
‒ Over 95% of cases are compromised
PROCEDURES - AFTER THE AUDIT (CONTINUED)

22. • Be proactive for uncertain positions
‒ DOR private letter rulings
‒ Consult 3rd party opinions
‒ Document statement of position
• Exemption certificates
‒ Ensure there is a good procedure in place for maintain and identifying which
exemption certificate corresponds to which invoice
‒ Request updated blanket exemption certificates every 3-4 years
“BEST PRACTICES” IN SALES & USE TAX

23. • Doing business occasionally in other states
‒ Consider if nexus has been established
‒ If nexus has been established, how far back does this occur
‒ Look into the Voluntary Disclosure Program (VDA) or Tax Amnesty
• Use 3rd party to maintain anonymity
• Reduce lookback period and have penalties abated
“BEST PRACTICES” IN SALES & USE TAX (CONTINUED)

24. • Don’t respond to a customer/vendor that is being audited without consulting
with your sales and use tax experts
• Clearly identify use tax on invoices and keep supporting documents for use
tax return
“BEST PRACTICES” IN SALES & USE TAX (CONTINUED)

25. • Key exemptions and exclusions:
‒ Manufacturing and processing
‒ Trucking operations
‒ Construction contracts
‒ Custom software/computer services
‒ “Cloud computing” used outside PA regardless if the server is located in PA
‒ Professional services
‒ Landscaping and snow removal
OPPORTUNITIES TO SAVE

26. • Key exemptions and exclusions (continued)
‒ Employee cost of help supply and building cleaning services
‒ Non-profit and government purchases
‒ “Special resale”
‒ Bulk sale
‒ Bad debt expense
OPPORTUNITIES TO SAVE (CONTINUED)

27. • It is difficult to master sales & use tax without consistent experience
• Sales & use tax laws are constantly changing
• “Fresh set of eyes” can bring a different perspective
• A resource to bounce issues off of
• Key contacts with the taxing jurisdictions
YOU DON’T HAVE TO DEAL WITH SALES & USE TAX ALONE!

28. • No cost preliminary review
• SALT group comes on site to review one year’s worth of purchase invoices, intercompany
agreements, prior audits, etc.
• Brief meeting with management to discuss business operations
• We will identify some key exposure items in addition to potential refund opportunities
and provide those to you
• We would provide recommendations based on our findings
• There is always value in a sales tax review, even if a refund on previous purchases is not
pursued
WHAT DOES A SALES & USE TAX REVIEW ENTAIL?

29. WHY MCKONLY & ASBURY’S STATE & LOCAL PRACTICE
IS DIFFERENT?

30. Jason Skrinak
jskrinak@macpas.com
Michael Eby
meby@macpas.com
CONTACT INFORMATION