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Sales Tax Staff Do Nothing But Collect and Remit Tax... Yeah, Right!

author photo of Alison Manning

“How hard can sales tax really be?” asked the Federal Tax Director, who was managing our State and Local Tax group on an interim basis. The question followed her assertion that the sales tax team didn’t require access to an online tax research tool since they “only collect and remit” the sales tax.

This sales tax “fiction” is a common perspective held by many outside the sales tax profession. It ignores the challenges of keeping up with the complex tax laws in every state and the enormous tax exposure risk avoided by ensuring compliance.

But even less understood, is that sales tax professionals can actually help create a competitive advantage! No, not the kind of competitive advantage that brick and mortar stores think they’ve lost to online retailers. In that scenario, the online purchase IS actually taxable, but states don’t enforce the remittance of use tax from individual consumers. I’m talking about lawful competitive advantage. Yes, they file tax returns, and yes, they do protect the company by knowing and applying every state’s laws. But, they are also deal closers, pricing strategists, and customer service advisors.

How, you ask?

Deal Closers: A few years back, we bid on a multi-million dollar project to provide all the equipment for a new facility the customer was opening in Philadelphia. It all came down to one final issue for the customer. I got the urgent call late in the day, and the critical question was, “Would we voluntarily collect their city of Philadelphia sales tax?” You see, we were only required by law to collect the state sales tax since the order and shipment originated outside the city. And, for us (as well as our two competitors), our tax software’s default set-up only calculated the 6% state sales tax rate on the quotation. We readily agreed, made the necessary changes in the software, and received the signed order that day. It was our willingness to accommodate their need, our ability to overcome the software challenge it presented, and the priority we put on their request, that finalized their decision.

Unlike individual consumers purchasing online, businesses get audited and will be assessed, with penalty and interest, if they make a taxable purchase and don’t remit the use tax. Business purchasers prefer to pay sales tax over the task of identifying and self-remitting use tax. Many companies will select a supplier who collects their sales tax over another supplier who does not.

Pricing Strategists: Although it may not ultimately drive the final pricing decision, input from the tax department is needed during the pricing phase of product development to identify potential sales tax exemptions available to the customer.

For example, does the product manager (or salesperson) know that by not bundling the pricing of electronically delivered software with hardware, it could save the customer an average of 8% sales tax in many states? Software license agreements are a material expense for most companies and the tax exemption savings are not inconsequential. There may also be opportunities to offer “load and leave” services where electronic delivery does not apply.

Some states have a provision that allows a lessor to make an election to pay tax on the purchase of the equipment instead of collecting sales tax from the lessee on the revenue stream. There are certain industries where leasing equipment is routine and you can be sure that the purchasers are considering the tax election in these states when selecting the supplier.

Customer Service Advisors: A company’s sales tax department is involved in many aspects of the business, including talking to customers. Customers call when they are under audit. They call when they don’t understand why certain charges were taxed. They call to ask, “Why is there tax on my order, I thought all sales over the internet were exempt”? The variety of customer service issues sales tax departments have to respond to requires a deep knowledge of current tax topics, including explaining what nexus is and what the “Internet Tax Freedom Act” is not, as well as refined customer service and communication skills.

Summary:

The Sales Tax Fiction: Sales tax staff do nothing but collect and remit tax. (They don’t add any value. All they do is drop numbers into forms.)

The Sales Tax Fact: The sales tax department can help gain competitive advantage that adds real dollars to the bottom line.

The sales tax profession is misunderstood and often mistakenly stereotyped as a simple, repetitive process that anyone can do. In reality, it is a perplexing and intricate tax discipline, and those with expertise are valuable to business planning and growth.

What fiction stories do you have? Let’s hear them!

About the Author: Alison Manning, CMI, managed sales and use taxation for Nike, Microsoft, and International Game Technology (IGT) for over 15 years, developing industry experience in manufacturing, gaming, high technology, wholesaling, and retailing operations. Her colleagues, competitors, and customers often sought her advice and perspective, developed by managing hundreds of sales tax audits, implementing automated solutions, leading cross-functional solution teams and solving customer concerns.

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Comments

10 Responses to Sales Tax Staff Do Nothing But Collect and Remit Tax... Yeah, Right!

  • Posted by Larry on September 15, 2014 12:30pm:

    Great Points.
    I often find that some Clients often don't take Sales and Use tax until it is too late. As in after the audit has gone bad. It's worse when they bring in a tax professional and don't listen to their suggestions. Makes our task difficult.

    • Posted by Author photo of Alison ManningAlison Manning Flanner on September 15, 2014 1:35pm:

      Thanks for the comment, Larry! I couldn't agree with you more. I've talked to many companies after the audit assessment is received and very few before the audit, when the planning and preparation could have been implemented to avoid the assessment.

  • Posted by Marc on September 15, 2014 5:37am:

    I guess there are two kinds of federal tax administrators: those who think of sales tax as a cash register function, and those who want nothing to do with sales/use tax--hence our job security.
    Years ago, my employer was negotiating a multi-million dollar contract that included sales-lease back. I asked for a copy of the proposals so I could get the research going but was told it was confidential--ending my involvement. The negotiations lumbered forward, and finally reached the point where external professionals had to sign off on the deal. At that point it was discovered that the terms of the deal defeated the presumed state tax exemption (of the contract's true object). That 6% difference blew the proposal out of the water. I'm ok with confidentiality, but where a transaction is exemption-dependent, prove out the exemption early on.

    • Posted by Author photo of Alison ManningAlison Manning Flanner on September 15, 2014 1:33pm:

      Thanks for sharing that story, Marc! It is critical that the sales tax professional be involved in these types of negotiations especially when a sales tax exemption is expected.

  • Posted by Judy on May 12, 2014 2:40pm:

    Excellent article!!!

  • Posted by Tom on May 9, 2014 1:26am:

    Great blog Alison...I don't know how many CFO's, VP's of Finance and even tax directors I've met over the years who all but disregard the importance of the sales & use tax function in their businesses.
    Very frustrating trying to work w/ folks who have that mindset, especially when you know that their non-compliance issues and/or disregard of nexus, taxability of products/services, filing errors is a ticking time bomb that could the business exponentially.
    One thing I've learned though, is those are usually the best clients to work with, once they're audited and beaten up by a couple of states...funny how they're ready and willing to listen and make changes at that point.

    • Posted by Author photo of Alison ManningAlison Manning Flanner on May 9, 2014 1:48am:

      Thanks, Tom! You are so, so, so right! Even with Tax Directors, the primary, if not sole, focus is on the effective tax rate, transfer pricing, etc. While these are extremely important, not enough understanding, or even desire to understand, the importance and complexity of multi-state sales tax laws, nexus, and the others you listed. And YES, audits tend to open eyes, the hard way. I've even had to explain why my staff was not working late during provision and am surprised when they don't understand that our peak times are each month. I appreciate your comments, Tom!

  • Posted by Kenneth on May 6, 2014 7:03pm:

    I very much agree. Example: the company has about 400 helicopters that all have jet engines. The overhaul facility in South Carolina was sending a "total" bill for the overhaul that included labor. I called them and told them to break out the labor from the $180,000 bill, and the new split invoice showed over $40,000 in labor, and I also told them to ship it back on our shipping account with the trucking company. I saved the use tax on the $40, 000 labor, and the $7,000 shipping @ 8%.
    Did the same thing with a company that was painting the aircraft. Total bill was $27,000 that was not broken out. When I received the revised bill, labor was $20,000, and paint was $7,000. This saved the company the tax on the $20,000 as the location the aircraft was based at did not charge tax on labor. Last, is the interesting and legal way we did not have to pay sales/use tax on an aircraft. The aircraft was "received" in a state that did not charge sales/use tax on commercial aircraft. The aircraft was "used" in that state, then transfered to Nevada. After first use outside the State of Nevada, there is no sales/use tax due on the aircraft. Tax savings on $7,000,000. Yeah, right, sales/use tax accountants only collect and remit tax!

    • Posted by Author photo of Alison ManningAlison Manning Flanner on May 6, 2014 10:57pm:

      Thanks for sharing, Kenneth! These are GREAT examples and illustrate the savings that companies lose everyday when someone who just doesn't understand the intricacies involved in these types of transactions. Well, ALL types of transactions essentially!

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