Rozes, Gouveia & Company, LLP

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Richard

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Richard Chouinard, CPA

SALES & USE TAX AND RELATED

 

Sales and use tax audits are becoming more frequent and less random.  Over the course of the last 6 months a number of our clients in various states have been selected for a sales tax audit including non-retail operations as the focus of those audits is on use tax.

 

On the surface, the collection and remittance of sales tax and the payment of use tax appear straight forward but it is not.  What makes the situation difficult is that there are many different scenarios that can be deemed a taxable sale for purposes of sales tax.

 

For example, a company selling goods to customers outside their home state which are deemed taxable in the seller's state and are shipped by common carrier.  Generally, that sale would not be considered taxable for sales tax purposes by the seller's state or in the customer's state unless the seller has so-called nexus to the customer's state.  Nexus represents a significant connection with the tax imposing jurisdiction and this connection may include soliciting sales in the state via an employee or independent agent, having a physical presence (e.g., sales office, warehouse) or by the delivery of goods into the state by means of other than mail or common carrier (e.g., shipped on your company's vehicles).  Once nexus is established, the company must collect sales tax, which may include both state and local taxes, depending on the jurisdiction.  Other problems exist where goods that are subject to taxation in one state may not be in another.

 

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Another problem area is use tax which is a sales tax based upon consumption to be paid by the buyer instead of being collected and remitted by the seller.  This is an area picked up on easily upon audit in that the tax examiner reviews the company's cash disbursements and related invoices supporting those cash disbursements looking for items received and consumed by the company that are subject to sales tax.  An example would be if you ordered goods to be consumed by your business (e.g., office supplies) from an out of state online vendor (e.g., Amazon.com) and no sales tax was charged.

 

OBSERVATION - Upon audit if an item is found to have been acquired by the company that was subject to sales tax and sales tax was not assessed/collected by the seller the buying company is required to pay the sales tax via a use tax payment.  Stated another way, it is the responsibility of the buyer to be aware of the assessment of sales tax and if it is not assessed properly it would need to be remitted as use tax.

 

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SUGGESTED PLAN OF ACTION - We suggest that our clients perform a self-audit review to determine the level of compliance by their company with applicable sales/use tax regulations.  This review should consist of determining the taxability from a sales tax standpoint of all products sold by the company along with the consumption of products acquired from out of state or from in state where no sales tax is applied and the applicability of use tax.  Each state has a sales tax division staffed with individuals that can answer specific questions pertaining to the taxability from a sales tax standpoint of a product, service, etc.

 

We are willing to assist you and your company with this very important process.  Please do not assume that we are aware of the sales tax nature of each and every product that your company sells and also the use tax ramifications of products your company may be acquiring free of sales tax.

 

Contact us with any questions are (401) 941-0202 or toll free (outside RI) 888.286.2918.

 

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Contact Us With Questions

401.941.0202 or toll free (outside RI) 888.286.2918

 

Steven D. Gouveia, CPA, ext 203     

Richard M. Chouinard, CPA, ext 202     

Brian S. Clavet, CPA, ext 205   

Rebecca L. Slaoui, ext 208          

Brittanie A. Rotondo, ext 206          

Donna L. Langevin, ext 201          

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Remember, when you can't afford to make a mistake, good advice is priceless.

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