Key Indirect Tax Strategies: Avoiding Critical and...
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Key Indirect Tax Strategies: Avoiding Critical and Costly Mistakes Navigating the Maze of Compliance Demands to Minimize Tax Liability Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. TUESDAY, OCTOBER 29, 2013 Presenting a live 110-minute teleconference with interactive Q&A Julian Chavez, Director, Transaction Tax, Ryan, San Francisco Jerry Barry, State and Local Tax Leader, Crowe Horwath, New York James Tauber, Managing Director, WTAS, Chicago
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Transcript of Key Indirect Tax Strategies: Avoiding Critical and...
Key Indirect Tax Strategies:
Avoiding Critical and Costly Mistakes Navigating the Maze of Compliance Demands to Minimize Tax Liability
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
The audio portion of the conference may be accessed via the telephone or by using your computer's speakers.
Please refer to the instructions emailed to registrants for additional information. If you have any questions,
please contact Customer Service at 1-800-926-7926 ext. 10.
TUESDAY, OCTOBER 29, 2013
Presenting a live 110-minute teleconference with interactive Q&A
Julian Chavez, Director, Transaction Tax, Ryan, San Francisco
Jerry Barry, State and Local Tax Leader, Crowe Horwath, New York
James Tauber, Managing Director, WTAS, Chicago
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Key Indirect Tax Strategies: Avoiding Critical and Costly Mistakes
Jim Tauber, WTAS
October 29, 2013
Jerry Barry, Crowe Horwath
Julian Chavez, Ryan
Today’s Program
Slide 7 – Slide 16 Sales and Use Tax Wing-to Wing Performance Review
[Jerry Barry]
Best Practices, Process improvement & Technology
[Jim Tauber]
M&A/Sales and Use Tax
[Julian Chavez]
Slide 36 – Slide 49
Slide 17 – Slide 35
SALES AND USE TAX WING-TO WING PERFORMANCE REVIEW
Jerry Barry, Crowe Horwath
Sales and Use Tax Wing-to Wing Performance Review
Crowe Horwath LLP
© 2012 Crowe Horwath LLP 9 Audit | Tax | Advisory | Risk | Performance
The Unique Alternative to the Big Four®
Overview of Indirect Taxes
Sales & Use Taxes
Sales tax is imposed on gross receipts
Use tax is complementary to the sales tax; imposed on purchases where tax was not
collected by the vendor.
Personal Property Tax
Renditions
Assessments
Bills
Business License Taxes, etc.
Industry Specific Excise Taxes
© 2012 Crowe Horwath LLP 10 Audit | Tax | Advisory | Risk | Performance
The Unique Alternative to the Big Four®
A qualitative assessment of how the
Company’s Sales and Use Tax function
performs across departments in an
organization.
Objective is to review sales and use tax
performance of the entire organization to
identify areas of risk and opportunities.
The goal is to:
maximize performance through process
optimization
reducing resources dedicated to non value
added task
The end result should be a clear concise
report that identifies areas of strength that
can be leveraged or risks with specific
corrective measures that are easy to
implement and provide quantifiable results.
What is a Sales and Use Tax Wing-to-Wing Performance Review?
© 2012 Crowe Horwath LLP 11 Audit | Tax | Advisory | Risk | Performance
The Unique Alternative to the Big Four®
Process evaluation includes gaining an understanding of the
following typical critical areas:
How Sales and Use Tax is calculated and applied to sales and purchases on the
front-end.
How are tax rules applied and maintained as well as how are exceptions
managed.
Evaluate controls for data hand-offs between internal functions for returns and
financial reporting accruals.
Understand staffing requirements and how the function is organized.
Review technology resources available and implemented.
© 2012 Crowe Horwath LLP 12 Audit | Tax | Advisory | Risk | Performance
The Unique Alternative to the Big Four®
When is it right for a Wing-to-Wing Performance Review?
Organizational and operational changes
(centralization, de-centralization, etc.)
System changes, ERP
upgrades/implementations
Personnel changes (smart-shoring, off-
shoring)
Adverse audit results
Significant and re-current refund claims
Enhanced financial reporting requirements
and/or a change in the regulatory
environment
Prior to an internal audit exam, controls
testing, etc.
© 2012 Crowe Horwath LLP 13 Audit | Tax | Advisory | Risk | Performance
The Unique Alternative to the Big Four®
The typical sales and use tax wing-to-wing workflow
Inputs:
Sales and billing
Purchasing
Procurement
Customers
Jurisdiction rules,
rates, etc.
Accounts Payable,
Accounts Receivable
IT
Through Puts:
Process
Organization
Personnel
Technology
Partners
Goals
Out Puts:
Tax returns
Notices
Audits
Appeals
Write-offs
Customer claims for
credits/refunds
© 2012 Crowe Horwath LLP 14 Audit | Tax | Advisory | Risk | Performance
The Unique Alternative to the Big Four®
Timeline Approach to Performing Review
Gain Understanding of the business
• Interview stakeholders
• Review tax returns
• Review work papers
• Review audit results
• Review Org charts
• Review accruals, reserves, write-offs
• Review process maps
Evaluation
• Review against performance metrics
• Baseline analysis of staff, competencies, technology
• Strength of the Internal Control Environment
Report-out
• Accuracy of returns
• Staff and competencies
• Adequacy of tax software
• Cycle time
• Productivity
• Adequacy of process documentation
© 2012 Crowe Horwath LLP 15 Audit | Tax | Advisory | Risk | Performance
The Unique Alternative to the Big Four®
Benefits of Sales and Use Tax Wing-to Wing Performance
Review
Optimize resource and headcount allocation.
Cost benefit analysis assistance regarding potential
IT projects.
Internal control deficiency remediation.
Tax software optimization.
Easy to implement solutions for maximum
efficiency.
Slide Intentionally Left Blank
BEST PRACTICES, PROCESS IMPROVEMENT & TECHNOLOGY
Jim Tauber, WTAS
Objectives
• Accurate Tax
Determinations/Collections
• Accurate and Timely Compliance
• Availability of Quality
Documentation to Support Audit
Defense
• Uniform and Streamlined
Processes
18
Sales & Use Tax:
Tax Determination Best Practices
• Nexus Study
• Exemption Certificate Management
• Accurate Tax Determination
• Internal ERP tax functionality
• 3rd party Tax Engines
• Certified Service Provider
• Alternative methodologies
• Formula Based Tax Reporting
• Maintenance (taxability, rates, etc.)
19
Sales & Use Tax:
Tax Determination Best Practices
• 3rd party Tax Determination Solution
• Address Validation
• Jurisdiction Assignment
• Sourcing and Exception Rules
• Nexus Manager
• Multi-factor Decision Capability
• Product/Services Taxability Content
• Reporting Database
• Import/Export Capability
• Maintenance (taxability, rates, etc.)
• Vendors
• Avalara, Vertex, Sabrix, Taxware
20
21
Required Information:
• Apply jurisdiction codes to the ship-to, bill-to and order entry addresses
• Product codes or classes
• Customer codes or classes
• Freight as a separate line item
• Managing exemption documentation
Billing & Distribution
Module
General Ledger
A/P, Material Request,
Purchasing Module
Rate Database
Jurisdiction Database
Tax Calculation
Database
Register Database or
Audit File
Tax Return Preparation
Package
Ho
st S
yst
em
Third-Party Software Package
Interface
Sales and Use Tax on Billing Transactions
22
Required information:
• Apply jurisdiction codes to all locations making purchases (ship-to address)
• Product codes or classes
• Vendor/Account codes or classes
• Freight as a separate line item
• Separate process for use tax withdrawals from inventory
Billing & Distribution
Module
General Ledger
A/P, Material Request,
Purchasing Module
Register Database or
Audit File
Tax Return Preparation
Package
Ho
st S
yst
em
Third-Party Software Package
Interface
Sales and Use Tax on Purchase Transactions
Interface
Rate Database
Jurisdiction Database
Tax Calculation
Database
23
Web Based Implementation
Customers ATG Dynamo
(Web)
CyberCash Tax Engine
Quote
Pipe
Oracle Apps
Pick/Pack/Ship Drop-Shipping System
Ship Confirms
Inventory Updates
Customers Orders
Reporting
Tax Engine Log
Slide Intentionally Left Blank
Sales & Use Tax:
Compliance Best Practices
• Tax Calendar
• Data Management
• 3rd Party Compliance Software
• Outsourcing/Compliance Services
• Evidence of Timely Filing & Payment
• Notice Tracking Log
25
Sales & Use Tax:
Compliance Best Practices
• Compliance Software Functionality
• Supply accurate and timely tax rates
• Prepare state and local signature
ready returns
• Import & Export Capabilities
• Electronic Filing
• Generate Payment Requests
• Maintain Audit Trail
• Management Reporting
• On Demand/Hosted Offering
• Vendors
• Avalara, OneSource, TaxWare, Vertex,
26
Sales & Use Tax:
Exemption Certificate
Management Tools
• Functionality
• Image Management/Electronic Storage
• Simultaneous Access by multiple users
• Embedded Form Rules
• Certificate Validation
• Real Time Integration
• Expiration Monitoring & Reporting
• Integrated Mail Merge/Email Notification
• Vendors
• Avalara (f/k/a CertCapture), ISSI, Vertex
27
Property Tax:
Compliance Best Practices
• 3rd Party Compliance Tools
• Preparing Tax Returns
• Maintained Jurisdictional Content
• Processing Tax Payments
• Reporting Capabilities
• Forecasting Tax Liabilities
• Tracking Appeals & Managing Audits
• Identifying Retired Property
• Break-out Non-Taxable Embedded
Costs
• Calculating Actual Property Value
28
Property Tax:
Compliance Best Practices
• 3rd Party Compliance Tools (Cont’d)
• Optical Character Recognition(OCR)
technology to capture tax data from
scanned tax bills and assessment
notices and then uploads the data to
tax software
• Reconciles tax bills and assessment
notices with sites and parcels
• Catalogs scanned tax bills and
assessment notices for easy access
• Reduces manually data entry
• Minimizes transcription errors
29
Property Tax:
Compliance Best Practices
• Reimbursement Capabilities
• Allocating Tax Back to Lessees,
Tenants, Cost centers, etc.
• Vendors
• PTMS, OneSource, etc.
• Pricing based on Number of
Returns, Users and Assets
30
Audit Defense Best Practices
• Preparation, Preparation,
Preparation
• Audit Strategy, Administration &
Communication Plan
• Communication/Status Tools
• Alternative
Documentation/Methodologies
• External Review
• Administrative Remedies
• Remediation
31
Planning, Refund and Risk
Mitigation Opportunities
• Procurement/Leasing Companies
• Credits & Incentives
• Refund Studies
• Voluntary Disclosures/Amnesties
Participation
32
34
Accuracy related penalties -- Any tax advice in this communication is not intended or written by us to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed by any governmental taxing authority or agency, or (ii) promoting, marketing or recommending to another party any matters addressed herein. The opinions and analyses expressed herein do not necessarily reflect those of WTAS LLC (“WTAS”) or any affiliate thereof and are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Any third party information contained herein is from sources believed to be reliable, but which we have not independently verified. No warranty or representation, express or implied, is made by WTAS, nor does WTAS accept any liability with respect to the information and data set forth herein. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein.
© COPYRIGHT 2013 WTAS LLC ALL RIGHTS RESERVED. All other company, organization, product or service names referenced herein may be trademarks of their respective owners. No part of this presentation may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of WTAS LLC.
Slide Intentionally Left Blank
M&A/SALES AND USE TAX
Julian Chavez, Ryan
www.ryan.com
00/00/0000
Presentation Title
www.ryan.com
October 29, 2013
Mergers and Acquisitions /
Sales and Use Tax Due Diligence
Presented by
Julian Chavez
Ryan
Key Indirect Tax Strategies:
Avoiding Critical and Costly
Mistakes
Introduction – Mergers and Acquisitions/Due Diligence
Importance of Proper Sales and Use Tax Due Diligence
– Successor's liability stock sale vs. asset sale
– Transaction structuring
The Sales and Use Tax Due Diligence Process
– Issue identification/high-level exposure estimate
– Issue drill down/refine estimate
Post-Close Exposure Remediation Process
38
Importance of Proper Sales and Use Tax Due Diligence
Successor’s Liability
– Stock sale
In a stock sale, all of the unrecorded liabilities of the target are
acquired in a transaction
– Asset sale
In an asset sale, the successor may be potentially liable for the
unpaid sales and use tax liability of the predecessor, up to the
purchase price of the assets in most states
– Bulk sale notification
Generally, the purchaser of all or a significant portion of the assets
from a business is required to complete a bulk sales notification
document
» This relieves the purchaser from the assertion of successor’s
liability for most states
» Requirements for notification vary from state to state
39
Transaction Structuring
Understanding the Transaction Flow
– It is important to understand the transaction flow in order to
determine at which point sales or use tax may be triggered
Is there the potential to restructure the transaction flow to
minimize the potential for the imposition of sales and use tax on
the transaction?
Is there a business purpose for each transfer in the flow of the
transaction?
» Avoidance of Step-Transaction Doctrine
40
Sales and Use Tax Due Diligence Process
Understand Target’s Business
– Review target’s website
Products and services
Industries served
Alliance partners
Locations
– Review target’s Annual Report/10-K
Affiliate activities
Recent acquisitions
– Determine jurisdictions where the target may potentially
have nexus
41
Sales and Use Tax Due Diligence Process
Data Room Review
– Review sales and use tax returns/state income tax returns
– Review prior state sales and use tax audit reports
– Review internal audit reports
– Review lease agreements
– Review customer agreements
– Review ASC 450 reserves
– Review resale certificates
– Review financial statements
Review revenue reports
– Review other relevant documents
42
Sales and Use Tax Due Diligence Process
High-Level Exposure Quantification
– Determine significant issues
– Quantify exposure – high level
– Discussion with due diligence team
– Discussion with target management
43
Sales and Use Tax Due Diligence Process
Issue Drill Down/Refine Exposure Estimate
– Post management discussion drill down on issues
Additional time allocated to determine extent of exposure on issues
determined to be material
» Review additional documentation and records
Determine extent of escrow reserve
Determine exposure remediation process
44
Post-Close Exposure Remediation
Exemption Certificate Remediation
– Obtain current resale certificates from customers
– Bolt on exemption certificate software
– Outsource exemption certificate maintenance
Voluntary Disclosure Projects
– Negotiate voluntary disclosure agreements with states
Sales and Use Tax Process Redesign
– Review and revise business processes around sales and use
tax compliance
– Bolt on tax engine
Pursuit of Refund Opportunities Identified During Sales and
Use Tax Due Diligence
45
Common Exposure Areas Identified in Due Diligence
Nexus/Registration
Exemption Certificate Management
Failure to Accrue and Remit Use Tax
Lack of Controls in the Sales and Use Tax Reporting
Process
Industry-Specific Issues
– For example: durable medical equipment companies –
customer loaners
46
This document is presented by Ryan, LLC for general informational purposes only, and is not intended as specific or personalized recommendations or advice.
The application and effect of certain laws can vary significantly based on specific facts, and professional advice of any nature should be sought only from
appropriate professional advisors. This document is not intended, and shall not be deemed, to constitute legal, accounting, or other professional advice.
© 2013 Ryan, LLC. All rights reserved. All logos and trademarks are the property of their respective companies and are used with permission.
Slide Intentionally Left Blank
